Lloyd's rescue plan faces fresh obstacle in US

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The Independent Online
The pounds 3.2bn rescue package for Lloyd's of London faced an unexpected new threat yesterday as two senior US officials raised new objections to the plan.

Lloyd's was already holding its breath yesterday as it waited for a key ruling from a judge in Richmond, Virginia, over a lawsuit brought against the London insurance market by 93 US names. Judge Robert Payne was due to announce whether to grant an injunction blocking Lloyd's plan late last night.

Then to Lloyd's dismay, top legal officials in New York and Colorado made moves that could threaten a deal signed in July that was aimed at ending legal action against Lloyd's in return for extra help made available to US investors helping to fund the plan.

The two states were party to this agreement and one of the officials played a key role in it. ''We'll fight it all the way down the line," said a spokesman for Lloyd's. "They want a better deal but there is no more."

Under Lloyd's recovery proposals, the 33,500 investors in the insurance market world-wide - called names - would pay to reinsure billions of pounds of liabilities into a new company, Equitas, enabling them to end their involvement and the market to continue to trade.

The names have until Wednesday to accept the plan, which also includes a pounds 3.2bn offer designed to soften the cost of Equitas and end litigation.

But in a dramatic twist, the New York Attorney-General, Dennis Vacco, who was instrumental in the July deal going through, wrote to the judge in the Virginia case, Robert Payne, urging him to affirm the right of US names who do not accept the recovery plan to sue Lloyd's in the US.

''It's a modest concession and within your equitable powers to require," he said.

Colorado has also entered the fray, with its attorney general, Gale Norton, informing Lloyd's lawyers he is working on a new claim against the market on behalf of names in that state.

The Colorado state security commissioner, Philip Fegin, played a leading role in negotiations for the deal to end Lloyd's US woes after launching his own challenge against the market.

As for the Virginia court case, Ron Sandler, Lloyd's chief executive, said in an affadavit to the Virginia Court this week: "The proposed order if issued would be the death knell of [the plan] and of the Lloyd's market.''

''Thirty-four thousand names, as well as hundreds of thousands of insureds would suffer catastrophic loss, uncertainty and dislocation.''

The delay caused by a hostile ruling would mean that Lloyd's Oversight Council ''will not be able to conclude that Lloyd's is a going concern'' Mr Sandler said. Lloyd's is, however, cautiously confident that it will be able to press ahead with its recovery proposals, under which it aims to reinsure billions of pounds of pollution- and asbestos-related liabilities into Equitas.

The Lloyd's chairman David Rowland told Reuters in an interview on Thursday evening that, with only days to go until the 28 August deadline by which Lloyd's wants names to vote on the recovery plan, a substantial number of US names had already accepted.

''I think it's extremely unlikely that the judge would wish to overrule the free choice that they have already made," Mr Rowland said.

While judge Robert Payne has indicated he does not want to derail the recovery plan world-wide, he was also expected to provide the 93 US names in the Virginia case with some sort of relief. There are 2,700 names in the United States and 33,500 world-wide.

Names who launched the latest assault on Lloyd's say the market is violating US securities laws and are demanding more information on syndicate reserves. Lloyd's contends that they are bound by contract to sue it in Britain.

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