The move, prompted by the court success two weeks ago of the Gooda Walker action group, involves an offer to negotiate individual settlements of debts to the market.
It is an alternative to making a global settlement aimed at all the market's participants, a move that failed to win support when the market authorities offered pounds 900m a year ago to settle legal disputes.
A letter to be received this morning by thousands of Lloyd's names will propose individual settlements if they agree to pay their damages awards into the market's Premium Trust Fund.
This move is designed to tackle the enormous resistance among names to handing over the proceeds of court actions directly to Lloyd's. There is no legal obligation on the names to use the money to pay their original losses.
The 3,000 Gooda Walker names believe their recent court victory could bring them up to pounds 500m in damages. Another case, involving 1,624 names on Feltrim syndicates claiming pounds 525m, started in the High Court on Tuesday. Other cases involving names claiming similarly large sums will start within the next 15 months.
If names refuse to use the award to pay off their Lloyd's debts it will leave the market's Central Fund to meet a huge shortfall in payments to policyholders. However, there are doubts that the Central Fund has the resources to meet the shortfall, raising question marks over the statutory solvency position of Lloyd's. Every year Lloyd's must show the Department of Trade and Industry that the society has the resources to meet all claims from policyholders. This makes it imperative for Lloyd's that it receives payment from names shortly.
Although Lloyd's appears to have satisfied the DTI that it has sufficient assets to meet the liabilities this year, the DTI is very concerned that what appears to be escalating non-payment by names will mean the market faces a difficult task in passing next year's solvency test.
David Rowland, the chairman of Lloyd's, denied pressure from the DTI.
'Nobody is putting pressure on us. We have a job to do to properly collect debt.'
As well as having debts that will be met by court awards, many of the market's litigating names have further debts to the market that they are also refusing to pay.
The letter proposes a complete solution to their total indebtedness to the market. One possibility is that names who respond positively will be offered a cap on outstanding liabilities.
Lloyd's has recently recruited a team of debt collectors, including external advisers, to collect money from defaulting names. Recent estimates suggest that as many as 17,000 names have fallen behind with payment of their losses to Lloyd's.
Late last month the new department made its first move, demanding that names contact the market with proposals for paying debts, and warning that a court victory resulting in compensation did not change the names' original liability to policyholders. The move followed persistent failure by the market's in- house debt collectors to obtain money from names.
However, reports suggest that very few names responded to the September letter, which is claimed to have contained mistakes about the financial position of many names.
Christopher Stockwell, chairman of the Lloyd's Names Association Working Party, poured scorn on any offer to individual names. He said: 'Names are in a strong position following the Gooda Walker judgment. It is very difficult to see any deal which will appeal to them. They have got their blood up and they are going to go for it.'Reuse content