Ten years after Lloyd's of London scandal, investors face new threat of financial ruin

It was one of the biggest financial scandals of the 1990s. It was a tale of fortunes gambled and spectacularly lost. It involved judges, MPs, members of the Royal Family, sporting heroes such as Henry Cooper and Virginia Wade as well as ordinary housewives, and it has left in its wake a trail of broken marriages, illness, suicide and financial ruin. Now, 10 years after one of the UK's oldest financial institutions was shattered by news of the suicides of some of its ruined private investors, Lloyd's of London, which made £2bn in profits last year, is still driving its investors into bankruptcy.

Two former Names, the private investors in Lloyd's who used their own money to fund the insurance market in exchange for a share of its profits, will appear in court today to face bankruptcy proceedings issued by Lloyd's. Others are about to lose their homes over their debts.

Ken and Heather Adams have a charging order on their property and have lived with the threat of bankruptcy for years. They have paid Lloyd's more than £350,000, but it is still asking for another £300,000. "We have given themeverything we have. The only thing we have left is our house. Our family has undergone years of stress and terrible anxiety. I lost my business because of the devastation Lloyd's has brought to my life," Mr Adams, 60, said. "We cannot even challenge how the debt against us was calculated."

It was his wife, Heather, who was made a Name in 1977 as a gift from her father, who thought it would bring her financial rewards. For the first few years she made some small returns. But then the gift turned into a financial albatross for her and her husband. "There is a conception that Lloyd's was a place for the idle, greedy rich. We were never particularly wealthy, and have had this nightmare forced upon us," Mr Adams said.

Richard Carter is also facing bankruptcy proceedings today. Now in his 80s, he has had to keep working as a surveyor to make ends meet. He will not be able to practice once bankrupted.

In 1996, Lloyd's tried to settle all litigation arising from the multibillion-pound losses its investors suffered in the late 1980s and early 1990s. Claims for asbestos-related diseases dating back to the 1940s had flooded Lloyd's after the US courts began ruling that someone who had been exposed to asbestos could claim, regardless of whether or not they had any symptoms of illness.

Most Names accepted that they would take on unlimited liability for claims arising in the future, but few say they were ever told that they would have to pay claims from the past. These claims were mounting, and unquantifiable losses were falling on the Names, some of whom were MPs, judges and royalty. By the early 1990s, many faced financial ruin. At least 15 committed suicide and as many as 500 were bankrupted.

Lloyd's offered Names a £3.2bn settlement towards their debts and forced all members into a ring-fenced reinsurance scheme, called Equitas, to take on all its old liabilities. This saved Lloyd's from collapse and forced Names to give up their legal claims. About 97 per cent of Names settled, and Lloyd's is now demanding an Equitas premium from the remainder. Mr and Mrs Adams say they cannot afford to pay it.

But even those who accepted the settlement have reason to fear that Lloyd's may come back for more. If Equitas does not have enough money to pay its claims, the Names still remain liable. Recent figures from Equitas show claims rose 27 per cent last year, and asbestos reserves were raised by £296m. It has reserves of £5.4bn to meet liabilities of £7.2bn.

Many of the Names have alleged that Lloyd's duped them into investing, by not telling them of the liabilities from many years previous that were swelling up against them. A group of 200 Names who refused to settle with Lloyd's brought a fraud case in 2000, led by Sir William Jaffray. The Court of Appeal found it had not fraudulently misrepresented the audit. But a number of Names believe their case was badly treated by the legal system. The more serious fraud charges they first alleged, that of "failure to disclose" or "active concealment", were dropped, unbeknown to the Names, nine days into the trial. They still do not know why their original pleadings were changed.

Lloyd's now accepts only corporate Names with limited liability and is enjoying record profits once again. The misery of the Names continues, however. One Name, who wanted to remain anonymous for fear of further reprisal by Lloyd's, is about to have his home repossessed. He joined in 1987, at the height of the asbestos claims, but he says that he was never told he would be liable for them. He never made a penny from his investment. "I ran a small business repairing sewing machines at the time. I thought it would bring me a bit of income. It's turned into a financial cancer that has just about ruined my life," he said. Lloyd's is planning to sell his home unless he can produce £400,000.

A number of Names continue to fight Lloyd's. One group is seeking redress in the European courts. Sally Noel, another former Name, is battling against Lloyd's in the British courts. She was ejected from Lloyd's annual meeting last month after making allegations of fraud, which she claims have not been properly heard. She received a letter from Lloyd's this weekend threatening to take bankruptcy proceedings against her.

Lloyd's insists its treatment of the Names has been fair. Sean McGovern, the legal director at Lloyd's, said, "Every organisation has a responsibility to collect the debts it is owed. The non-paying Names have court judgments against them and there is no dispute about their obligation to pay. Lloyd's does not pursue Names into bankruptcy unnecessarily and we consider it the last resort. There has been plenty of opportunity for Names to come to a settlement with Lloyd's."

He also says Lloyd's has written off liabilities of some Names who were unable to pay anything towards their debts.