The reinsurers, worried about the rising cost of pollution claims from American local governments, threatened a boycott of such policies in the early 1980s, and managed to get four big US insurance companies to change their standard coverage to disallow claims once a policy had expired.
Prior to 1984 the US insurers had provided commercial general liability coverage on an 'occurrence' basis, allowing claims for damages after the policy had expired, as long as they were incurred during the life of the policy.
But the switch to 'claims-made' coverage prompted lawsuits by public prosecutors in 19 American states, charging that the firms were colluding to deny local governments pollution liability coverage.
For their part, the US insurers - Aetna, ITT-Hartford, Cigna and Allstate - argued that they were allowed to agree among themselves on such changes because of exemptions the industry enjoyed under US monopolies law, including the right to publish standardised coverage forms.
But the US Supreme Court, in a split decision, said the switch in policy amounted to an orchestrated boycott, opening all 32 firms involved to anti-trust charges - including the British reinsurers, who had argued that the ruling would conflict with UK insurance law.
The 19 states, which are seeking unspecified damages from the insurers, are now free to press their suits, although lawyers say it may be many years before there is a final ruling on the alleged collusion.
But a final judgment could force the insurers to reinstate cover retrospectively to the local governments cut off by the policy switch, adding significantly to Lloyds' woes in the longer term.
The judgment could also eventually force the industry to revert to open-ended occurrence-based liability, analysts say.
But insurance industry spokesmen say it will difficult for the states to demonstrate what harm has been done by the switch in coverage terms.
Local governments have since formed their own mutual insurance groups to handle pollution liability claims, noted Marc Rosenberg, vice- president of the Insurance Information Institute in Washington.Reuse content