'Spectacular incompetence' alleged in Lloyd's case: Underwriters gambled recklessly, claims QC representing 3,000 names

INVESTORS in the Lloyd's of London insurance market lost hundreds of millions of pounds because the underwriters at Gooda Walker were guilty of 'incompetence on a spectacular scale', the High Court was told yesterday.

Opening the case on behalf of 3,095 investors who are suing their agents for more than pounds 629m, Geoffrey Vos QC alleged that Gooda Walker's underwriters had gambled recklessly. He said they 'either did not know the scale of their likely exposure (to losses) or, if they did, they wholly ignored it'.

The Lloyd's investors, known as names, suffered huge losses, and many were ruined. 'Several of the names have committed suicide as a result,' Mr Vos said.

The four Gooda Walker insurance syndicates involved in catastrophe reinsurance were hit by pounds 850m of losses. In 1989, Mr Vos said, the syndicates sustained 30 per cent of the losses of the entire Lloyd's market, then made up of 400 syndicates.

Derek Walker, the underwriter on the largest of the Gooda Walker syndicates, seemed to have worked on the 'ephemeral' basis that there would not be a huge catastrophe, Mr Vos said. Stan Andrews, the underwriter responsible for the syndicate making the heaviest losses, was 'oblivious' to the effect of a catastrophe on the investors.

Mr Vos disputed the members' agents' claim that Hurricane Hugo, the Piper Alpha oil rig explosion and the other catastrophes that produced the losses were unprecedented. 'They were the catastrophes against which the underwriters had been paid to reinsure,' he said.

Any one of the catastrophes would have exposed the failings of Gooda Walker's underwriting, Mr Vos said. The bulk of the 1988 loss on Mr Andrews' syndicate 298 was caused by Piper Alpha, a relatively small incident that Mr Walker even refused to recognise as a catastrophe. Most 1989 losses on Mr Walker's syndicate 290 were caused by Hurricane Hugo, 'a normal North American hurricane'.

Mr Vos said it was extraordinary that the 69 members' agents who are Gooda Walker's co-defendants were trying to justify the actions of the Gooda Walker underwriters.

'The members' agents slated in the most explicit terms the conduct of these underwriters when the balloon went up,' he said. 'They condemned them out of hand.'

Mr Vos said a meeting of members' agents in July 1991 had 'descended into uproar because the members' agents were so outraged at the underwriting. Now they defend it and say it was all OK.'

Mr Walker was himself highly critical of Mr Andrews' work, the court heard. And Tony Gooda, the firm's chairman, had said that Mr Andrews' losses were due to incompetence.

The names rejected the defendants' claim that their losses were a consequence of a high-risk, high-reward underwriting investment.

Profits on the Gooda Walker syndicates in the 1980s mostly ranged from 3 to 23 per cent of underwriting capacity, Mr Vos said. But the 1989 losses were wholly disproportionate, reaching 386 per cent on Mr Walker's syndicate 290 and 730 per cent on syndicate 298.

The underwriters allegedly ignored obvious and accepted principles of reinsurance underwriting. In particular, they had no idea of their potential losses.

The case, which continues today, is expected to last three months.