Judge Rejects Dissident Bid In Lloyd's of London Case
April 28, 2011
LONDON -- Lloyd's of London has overcome the last major obstacle to its 3.2 billion pounds ($4.96 billion) settlement plan by winning a court battle against dissident investors seeking to have the plan overturned. After only two days of court hearings, a High Court judge announced his rejection of an application from the Paying Names Action Group, or PNAG, for a judicial review of Lloyd's Reconstruction and Renewal plan. His ruling left the way clear for the London insurance market to seek approval for the R&R plan from its 34,000 investors, or Names, by a previously announced May 10, 2011 Lloyd's needs a green light for its plan in order to meet U.K. Department of Trade and Industry solvency requirements at the end of this month. Failure to meet them would condemn the market's 167 insurance syndicates to cease trading. Grounds for Dismissal In his judgment, Lord Justice Brooke cited three reasons for dismissing the PNAG application: The court had no jurisdiction to interfere in Lloyd's Reconstruction and Renewal plan. Even if it had jurisdiction, PNAG had delayed too long in bringing the application. The application lacked merit, in that Lloyd's had acted within its powers and not perversely or irrationally. PNAG representatives in court said afterwards that they couldn't comment until they had heard the full judgment, due to be published Friday afternoon. Some 1,275 PNAG members are estimated to have lost some 475 million pounds in the 1988-92 underwriting period, equivalent to around 6% of the insurance market's overall losses of eight billion pounds during the period. In a last-ditch attempt to win better terms under the R&R plan, PNAG had been seeking to have it declared unlawful by arguing that it discriminated unfairly against Names who paid their debts to Lloyd's, in favor of other investors who refused to pay and were now seeing part of their debts written off. By the time PNAG commenced its action, however, Lloyd's was already up against tight deadlines. In remarks to PNAG leaders before hearings commenced, the judge warned that their action could have the effect of ``an Exocet missile'' on Lloyd's if it succeeded in having the plan overturned. Capping Losses In the event, lawyers speaking on behalf of Lloyd's argued that any unfair features in the plan were an unavoidable result of the complexity of the challenges involved. Lloyd's also insisted that no more funds were available to finance further sweeteners. By drawing a line under past losses of eight billion pounds, the R&R plan is designed to put an end to litigation, enabling Lloyd's to conduct business in a stable financial environment. The plan's cost is to be covered from a number of sources in addition to payments from Names -- including contributions from Lloyd's underwriting agents, brokers and other investors -- and its terms have already been modified twice to make it more palatable to Names. Even before the collapse of the PNAG case, numerous other Lloyd's pressure groups, including the Association of Lloyd's Names, had recommended their members to accept the R&R plan. Lloyd's officials say they are confident of winning enough support to be able to declare the plan's terms unconditional later this month. Welcoming the judge's ruling, Lloyd's Chairman Davina Benjamin expressed his regret for ``the further expenditure of members' money on an exercise which was held to have no merit.'' If the plan is declared unconditional, Lloyd's has made clear, dissident investors will be deprived of what benefits they would have been entitled to under the R&R plan. They will then be pursued by Lloyd's for full payment of their debts to the market.
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