Court victory deals blow to Lloyd's
Wednesday 20 March 1996
The victory by names in the Rose Thomson Young syndicate (RTY), which lost heavily on the Piper Alpha oil rig disaster and Hurricane Hugo, follows hard on the heels of previous judgments against several other managing agents of Lloyd's syndicates, including Gooda Walker, Feltrim, Merrett and Pulbrook.
Only two months ago the Feltrim names were awarded an interim settlement of pounds 175m. RTY names now stand to recoup up to 70 per cent of the accumulated pounds 450m of losses run up over several years in their syndicate.
Lloyd's is facing legal action from almost 14,000 of its 34,000 investors, and is desperately trying to refinance to erase the pounds 8bn of losses which have been suffered by the market over the five years to 1992.
The RTY judgment will bring great relief to several high profile names that each stood to lose hundreds of thousands of pounds. They include Ian Lang, President of the Board of Trade, who is believed to have lost pounds 800,000 in the crash of RTY. Sir Richard Body, another Tory MP and a prime mover in the case brought by the RTY action group, claimed that the judgment was a "notable victory".
Judge Thomson Young said yesterday in his 179-page judgment that the conduct of Norman Bullen, underwriter for RTY, "fell below the standards to be expected of any underwriter who specialised in this market".
He added that the managing agents of RTY were "not only liable, vicariously, for the acts and defaults of Mr Bullen but they were also in breach of duty as managing agents".
The RTY action group sued the syndicate and 42 members' agents for negligence on behalf of 1,092 investors, whose probable individual losses for a pounds 40,000 share in the business were put at up to pounds 164,000 for 1988 and as much as pounds 282,000 for 1989.
Ian Chalk, chairman of the action group, said yesterday: "We are delighted that we appear to have won conclusively on the main issues after a three- year battle. The judge made it quite clear that it was totally unsatisfactory for an incompetent underwriter to expose his names to massive amounts of risk of loss."
The judgment has come at a bad time for the insurance market, which is trying to persuade investors to accept a pounds 2.8bn settlement package, which would entitle them to quit the market free from possible further liabilities.
Names have the opportunity to dissociate themselves from future claims by paying a maximum pounds 100,000 on top of their original investment deposit lodged at Lloyd's.
One of the main planks of the refinancing is the aim by Lloyd's to divide into two. Problem policies sold before 1993 will be spun off into a new company known as Equitas. This would have to take on massive liabilities related to pollution and asbestos in the US. But setting up Equitas needs approval of the names, who want more money to be put on the table.
The RTY action group said that its legal victory had strengthened the case for an improved payout. A spokesman added: "Our belief is that this judgment should substantially reinforce the fact that if the Lloyd's Equitas project is to succeed, there must be a substantial revision in the contribution offered by the E&0 [errors and omissions] underwriters, which should include a cash payment to our names."
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