Lloyd's to offer ruined names pounds 1bn: Compensation move designed to prevent years of litigation

Click to follow
The Independent Online
THE FINANCIALLY ruined underwriting members of the Lloyd's of London insurance market - the names - are likely to be offered up to pounds 1bn in settlement of their claims for compensation for pounds 2bn worth of losses.

Senior market professionals believe that the structure of the likely offer of compensation to the aggrieved names on account of alleged negligence is now becoming clear, and the total amount may be three times as much as previously reported estimates.

The move by Lloyd's is designed to head off years of litigation against companies in the market by members who have been brought to bankruptcy by three loss-making trading years.

The settlement will be the most ambitious plan to appease angry members in Lloyd's 305-year history.

Lloyd's expects money for the offer to come from the agency companies which looked after the affairs of 17,000 underwriting members who face financial ruin.

Lloyd's also expects a cash payment from errors and omissions insurers and reinsurers, who insured the agency companies against suits for damages, and a contribution from the administration's own central funds. Those two other cash payments could together total some pounds 600m, with equal amounts coming from both sources.

Lloyd's may look for a further contribution from other companies operating in the market, bringing the total offer made to underwriting members to as much as pounds 1bn.

Directors of agency companies at Lloyd's are holding board meetings throughout this week to gain approval for participation in the offer and to authorise documentation.

Lloyd's expects that an initial contribution will be paid by underwriting agents by 19 November.

At the end of this month, an offer document will be posted to underwriting members by Lloyd's.

The agents will be required by Lloyd's to contribute an amount equivalent to the deductibles - the first part of a claim not covered by an insurer - under their relevant errors and omissions policies.

Agents may have to make contributions in respect of uninsured losses. They may have arisen because losses may be in excess of the cover provided by errors and omissions insurers, or if the agents did not have errors and omissions insurance for any year in question.

Lloyd's feels that it may not be able to determine the amount of unspent deductibles before the offer is dispatched. Agents will be asked to make an initial contribution. When the offer closes Lloyd's will calculate the final amount in conjunction with errors and omissions insurers.

In order to participate in the offer, the underwriting members will have to assign their rights to collect any claims to a newly formed company called Lloyd's Recoveries (1993) Ltd.

If underwriting members accept the offer they will have to agree to a release document and convenant not to sue anyone who participates in the settlement.

Comments