Hundreds of errors and omissions insurers are locked in intensive discussions to assess how much they should pay out to thousands of underwriting members - or names - as part of a private settlement.
The errors and omissions insurers provided financial protection for companies looking after the underwriting members against the consequences of legal suits for damages.
As part of a Lloyd's initiative they are exploring ways in which they can pay the members a contribution to their losses and bring to an end the possibility of litigation against their clients.
However, the possible amount available will cause widespread dismay among the members who have been looking for considerably more financial help from Lloyd's to stave off personal ruin.
Lloyd's is attempting to resolve all litigation by the end of this month with the offer of a settlement to the members.
Sir Michael Kerr is chairing a legal advisory panel on behalf of Lloyd's that is evaluating claims made by members. He is believed to have made recommendations to Lloyd's about the settlements that should be made. Any recommendations will not be binding on individuals and companies participating in the Lloyd's initiative and full details are likely to be given to the affected members at the end of this month.
A financial panel chaired by Sir Jeremy Morse, the former charman of Lloyds Bank, will decide on the level of any payment that should be made to the distressed underwriting members.
With the comparatively small level of possible funds available from errors and omissions insurers to help the underwriting members, David Rowland, Lloyd's chairman, is believed to have appealed to all agency companies and insurance brokers to contribute in an effort to provide more financial relief for the members.
Two years ago Lloyd's attempted to raise at least pounds 50m from the companies in the market in an effort to provide financial help for the members. But the scheme foundered because those that would have contributed wanted to channel funds to a trust that was a recognised charity. But the Charity Commissioners refused to grant charitable status to the proposed fund and the scheme was abandoned.
However, Mr Rowland is expected to seek a higher amount from the market in an effort to provide a convincing settlement for the members.
Lloyd's is anxious to head off legal action ahead of ambitious plans to introduce new investors into the market next year. For the first time in its 305-year history, Lloyd's is admitting companies into its market as investors with the prospect of raising more than pounds 1bn in new capital.
Lloyd's needs companies as investors to compensate for the departure of thousands of underwriting members as losses ballooned to pounds 5.5bn. In 1988, there were 32,433 underwriting members. By this year, the membership had declined to 19,537.
However, many of the financial vehicles raising the new money have warned in their prospectuses that there is the possibility of extensive litigation in the market and there are fears that this might deter new capital from coming forward.
In its guide to corporate membership published in September this year, Lloyd's said that there would be a central contribution to any settlement if that were considered to be in the best interests of the market as a whole.
Further funds could come from a central fund of last resort in the market, designed to protect policyholders' interests against the default of any underwriting member. In August this year the resources of the fund stood at over pounds 1bn.Reuse content