Insurers must pay US claims

UK INSURERS will have to pay pounds 250m towards the payment of claims from thousands of doctors, lawyers and accountants in the US and Canada after a judgment yesterday from the House of Lords.

The Law Lords upheld an earlier ruling that required the Policyholders' Protection Board to make payments to overseas policyholders of insolvent UK insurance companies. The costs would fall upon UK insurers, who would have to pay a levy to the board.

The payout to policyholders of the so-called Kelm group of insurance companies is by far the largest since the Policyholders' Protection Board was established in 1975.

Royal Insurance, on behalf of other insurers, had argued that the legislation intended only to protect UK policyholders. The Association of British Insurers is very concerned about the ruling and is talking to the Government about limiting the scope of the Policyholders Protection Act.

Mike Jones, the ABI's departing chief executive, said: 'The bulk of the claims arise from business partnerships established overseas, but the cost will fall on UK policyholders. We do not believe that Parliament ever intended protection to extend worldwide to commercial policyholders.'

The Kelm companies - Kingscroft, El Paso, Lime Street and Mutual Reinsurance - are part of London United Investments, the insolvent insurance group under investigation by Department of Trade and Industry inspectors. Claims on the US professional liability cover that formed the bulk of their business have soared because of the generous awards made by US courts.

Christopher Hughes, the Coopers & Lybrand partner who is provisional liquidator to the Kelm companies, said yesterday's decision removed an area of doubt for creditors. It would enable him to bring forward the scheme of arrangement that he hopes to put to creditors next month.

The PPB is expected to make another levy on insurers later this year.