The 'dummy agent' and the Names who could not say 'no'

Jason Nissé reports on the strange case of the syndicate that acted on behalf of Lloyd's investors, whether they liked it or not

High up in the iconic Lloyd's of London building is a series of offices. There sits a group of legally trained administrators called the corporate secretaries of Lloyd's. However, since 1996, this has also been the home to the biggest insurance underwriting syndicate agency in the world - Additional Underwriting Agencies (No9).

High up in the iconic Lloyd's of London building is a series of offices. There sits a group of legally trained administrators called the corporate secretaries of Lloyd's. However, since 1996, this has also been the home to the biggest insurance underwriting syndicate agency in the world - Additional Underwriting Agencies (No9).

AUA9 has acted on behalf of more than 34,000 people - many of whom did not want it to act for them, and some of whom did not even know it acted for them.

The strange story of AUA9, and its role in Lloyd's giant "Reconstruction and Renewal" (R&R) shake-up, was finally wound up in the UK courts before Christmas.

This was when the Court of Appeal rejected a petition by a US investor at Lloyd's to have the actions of AUA9 ruled out of order, because it was not really a members' agent and was merely a dummy created by Lloyd's to push the R&R deal through. The battle may continue at either the European Court of Justice or the European Court of Human Rights.

In 1995, the then chairman of Lloyd's, David Rowland, unveiled the R&R reform, which reinsured the liabilities of all investors - or Names - who had invested prior to 1993 in a new vehicle called Equitas. The plan aimed to get rid of the hangover from asbestosis claims that had brought the insurance market to the brink of collapse.

According to Lloyd's, more than 30,000 Names accepted the deal. Many of the remainder fought Lloyd's, with over 300 still refusing to pay up today.

Lloyd's used its powers under two Acts of Parliament, the Lloyd's Acts 1871 and 1982, to force through R&R. These allow it to create bylaws, which have the power of subordinate legislation. In conjunction with the bylaw facilitating R&R, Lloyd's used another which allowed it to appoint a substitute agent for investing syndicates. This was originally created so that if, for example, a members' agent was killed in a car crash, the syndicate he ran could still operate.

Lloyd's appointed AUA9 to act for all 34,000 Names, and AUA9 accepted the terms on behalf of them, whether the Names wanted to or not. Nearly 1,000 Names refused to pay up, and Lloyd's sued them.

Some 222 of these Names were based overseas, and rather than pursue them where they lived, the writs were served on AUA9, which accepted service. These Names were not even told they had been sued.

"In the reinsurance contract that AUA9 entered into on their behalf, they gave authority to AUA9 to accept service on their behalf," says Lloyd's.

AUA9 had a single shareholder: AUA10, a firm owned by Lloyd's. All the officers of AUA9 were employed by Lloyd's in the corporate secretariat, and all of them were paid by Lloyd's for their work on AUA9.

When AUA9 needed legal advice, it went to a solicitor, Clyde & Co, which was retained by Lloyd's. When Lloyd's sued the 222 Names, it generated a writ in one part of its offices and served it in another. It then set about collecting money from Names who often didn't know anything about the legal action.

Overseas Names have continued to challenge Lloyd's. However, in Lloyd's v Leighs and others in 1997, Mr Justice Coleman upheld the market's right to appoint a substitute agent, and last year, in Lloyd's v Tropp, Mr Justice Gross rejected claims that AUA9 was not a members' agent, but a dummy for Lloyd's.

Names have long suspected AUA9 was used so that Lloyd's did not have to serve a writ in a foreign jurisdiction, where it would have had to prove a prima-facie case and the courts might not have accepted the all-encompassing powers Lloyd's has in the UK. This was implied in the Tropp ruling, where Mr Justice Gross said: "Mr Tropp's own stated intention of otherwise pursuing the US remedies argument points to the desirability of a clause of this nature. The alternative of satellite litigation in sundry other jurisdictions is deeply unattractive."

A Lloyd's spokesman said: "The courts, including the Court of Appeal, looked in great detail at the way Names' liabilities were reinsured into Equitas in the mid-Nineties and always found Lloyd's acted properly and appropriately."

Names feel that the UK courts have successively favoured Lloyd's over them in cases stretching back a decade and a half.

Some now plan to take cases to Europe, where they hope the judges will rule that the UK courts have been unfairly supporting R&R and the use of AUA9.