The judgment confirms everyone's worst suspicions. Lloyd's is meant to be an insurance market, yet these were people who had little if any idea of how to quantify or keep track of risk, the very commodity in which it is supposed to be expert. Regulation, too, seemed to be lacking in the extreme.
Mr Justice Phillips has also laid to rest the unfair but still prevalent myth that the names were rich, greedy or both, went into it with their eyes open and should have been aware that they were committed to their last cufflinks.
Lloyd's marketed itself to many ordinary middle income investors in the 1980s on what amounted to a false prospectus, promising regulation where almost none existed. The deception sometimes went deeper, with some syndicates inventing profits in accounts shown to prospective members.
Those tempted in were repaid with negligent underwriting and non-existent supervision of risk. Now the courts have done what Lloyd's failed to do and given aggrieved names their full backing.
Gooda Walker names would be foolish to count their chickens just yet, however. The mooted pounds 500m payout could prove optimistic. For a start, there may be an appeal. It is also not clear how much money the errors and omissions insurers at Lloyd's - and their reinsurers - have available.
The effect of yesterday's judgment is to pass the burden of the Gooda Walker losses from names to those who insured Gooda Walker agents against negligence. The problem is thus moved but not removed.
Given that the market as a whole bears responsibility for the failure in supervision that allowed such a destructive spiral of underwriting to develop, there is a powerful case for spreading the burden more widely. A way needs to be found of distributing the pain between victims of negligence and the rest of the members.
Wheels always grind slowly at Lloyd's, but a series of settlement offers to litigating names now seems certain. Since the pot of money is limited, it is hard to see the errors and omissions underwriters coming up with enough to persuade all names to settle.
The last global settlement offer of pounds 1bn, which included pounds 450m from central funds, was rejected by members at an extraordinary meeting, and Lloyd's is wary of trying again. The alternative is scarcely more appealing, however. At a time when the market seems to be turning the corner, it would be forced into a slow and expensive war of attrition.
The obvious and perhaps only realistic solution is for Lloyd's to speed up a settlement by topping it up with a handsome contribution of at least pounds 1bn from the market's central funds, even if that means a general levy.Reuse content