Although 12,103 members rushed to accept the deal, which would save them from bankruptcy, Lloyd's had decreed that it needed acceptances representing 70 per cent of the pounds 900m before it allowed the deal to go through.
Instead, only those entitled to 38 per cent of the offer, or pounds 342m, had accepted by 3pm yesterday when the offer closed.
A disappointed David Rowland, chairman of Lloyd's, said after the figures were counted: 'I regret the final result.'
The offer had been designed to head off years of legal action brought by Lloyd's members, who have alleged negligence and malpractice in the conduct of their affairs. The losses followed a series of large insurance claims arising from hurricanes, wind-storm damage in Europe, and asbestosis and pollution damage.
Mr Rowland said: 'I am particularly sorry for those members of our society not presently litigating, to whom offers were made and which now lapse. Litigation is an untidy, lengthy and expensive route. It may yield benefit to some who have chosen it but I fear that others will be disappointed in that course.'
The failure of the rescue plan came after leaders of action groups fighting for financial help advised members to reject the deal. They regarded the offer as inadequate and had told the members that they stood a good chance of winning a larger amount through legal action.
Colin Hook, representing more than 1,500 individuals who were members of syndicates managed by the Feltrim agency, is seeking pounds 599m plus interest in the courts. In the Lloyd's deal his members had been offered pounds 237.5m.
Last night Mr Hook said the Lloyd's plan 'had too many deficiencies. We have done our best to make this clear to them at every opportunity.'
Philip Rocher of the law firm Wilde Sapte, which is acting for 3,000 underwriting members of the Gooda Walker agency in forthcoming legal action against hundreds of companies at Lloyd's, said: 'We are just going on with the case. A hearing is scheduled in April.'
The Association of Lloyd's Members, representing more than 8,000 individuals, said 'the underwriting members have spoken. They obviously prefer to seek justice in the courts. We will do what we can to help them.'
Some members hoped that Lloyd's would be prepared to negotiate a better deal, but Peter Middleton, the market's chief executive, said: 'The offer is dead. There is no further offer from Lloyd's'
He added that Lloyd's did not want to lose the climate of co-operation between action group leaders and the market. But he stressed that there could be no commitment to the future deployment of central funds to help members. Negotiations would have to take place between action group leaders and errors and omissions underwriters at Lloyd's, which provided around pounds 400m to the settlement.
The errors and omissions underwriters provided insurance cover for companies operating in the market to protect them from the consequences of legal suits for damages.
Mr Middleton said he expected that these discussions could not take place before the end of the year.
The Society of Names, a ginger group pressing for help for Lloyd's investors, said that members 'now move from one veil of tears to another: from the flawed offer to litigation. Litigation is time consuming and arbitrary.'Reuse content