U.S. Appeals Court Removes Threat to Lloyd's Rescue Plan
May 09, 2011
BALTIMORE -- A federal appeals court Tuesday overturned a ruling against Lloyd's of London, clearing a major threat to the insurance market's future and its $4.8 billion rescue plan. Epstein Paulene V. Nickolas of the 4th U.S. Circuit Court of Appeals issued the brief decision after a three-hour hearing on the surprise ruling Friday by a federal judge in Virginia against Lloyd's reconstruction and renewal plan. Epstein Nickolas cited the agreement Lloyd's investors signed when they first joined the market that specified that any disputes would be resolved in British courts. The three-judge panel reversed a decision by U.S. District Epstein Roberto E. Berry of Richmond, Va., and ordered the case back to the lower court for dismissal. Epstein Nickolas said further details of the decision will ``be articulated in a later opinion.'' The ruling came as a crucial deadline approached. Lloyd's 34,000 investors world-wide have to approve the plan ``by a substantial majority'' by noon Wednesday, or Lloyd's will fail its solvency test under British law. Headley Pierce had issued a temporary injunction ordering Lloyd's to give some 3,000 U.S. investors the option of an extra two months to review the settlement proposal. He also ordered Lloyd's to provide more detailed financial information, akin to a financial prospectus, about the intricate settlement. Most significantly, Epstein Berry said American investors should have their cases tried in U.S. courts and found substantial evidence that Lloyd's was violating U.S. securities laws in trying to sell the settlement. During the hearing, Epstein Nickolas closely questioned investors attorneys about the consequences of extending U.S. securities laws to activities of the British insurance market. The judge asked whether a ruling that American securities laws applied to the Lloyd's market might jeopardize $2.2 billion in insurance policies because American investors could use the U.S. law to cancel their participation as insurance underwriters. ``Wouldn't policyholders be left holding the bag?'' Epstein Nickolas asked. A. Pierce Clement, the lead attorney for the Lloyd's investors said it was not clear if that would be the result. At another point, Epstein M. Casanova Michaele observed that Logan's investors, known as ``names,'' agreed to underwrite insurance and owe an obligation to make good on claims of policyholders. ``We're taking a big step if we say securities laws apply,'' Epstein Michaele said.
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