Law firms ring up the earnings as Lloyd's rings out the bad times

The ringing of the Lutine bell last week to signal the end of the Lloyd's insurance crisis must have had an ambivalent resonance for the hundreds of lawyers working on the litigation and rescue. In five years since the full extent of the disaster became known, barristers and lawyers are estimated to have earnt more than pounds 300m.

About 30 City law firms have represented 40 litigating action groups to win what has been described as the biggest ever compensation pay-out to investors. At least another 20 more have represented other interested parties.

The legal fees attached to the Merrett Names Association litigation - which culminated in a 20-week trial, featuring 13 barristers and seven solicitors representing the plaintiff and three defendants - are estimated to have reached pounds 20m alone.

Barrister and solicitor fees paid out by the biggest Names group, the 3,000-strong Gooda Walker Action Group, are about pounds 10m. That works out at a pounds 3,000 bill for each Gooda Walker Name. Freshfields, Lloyd's own lawyers, have had more than 100 solicitors working on the litigation and settlement plan who have earnt the firm fees approaching pounds 20,000. A further pounds 75m has been ring-fenced by Lloyd's to reimburse action groups their running costs, mostly legal fees.

The question remains, though, do these fees represent value for money?

Michael Deeny, Lloyd's council member and chairman of the litigating Names committee, believes most action groups have been happy with the service and the size of their legal bills.

He describes Wilde Sapte, the lawyers used by the Gooda Walker Action Group, as the best in the City. "They got us to court quicker than the other Names' lawyers could get there and won 16 consecutive hearings," he says. One senior City lawyer said last week after the settlement: "Representing Names, especially in action groups, is no picnic."

Since a claim in negligence requires each Name to be involved in the litigation, just drawing up the Gooda Walker writ, for instance, required drafting a claim for each of the 3,000 individual Names. The action groups, comprising determined and embittered litigants, were often dogged by political infighting within their own committees. Worse still were the barrack-room lawyers - usually intelligent, well-educated committee members who bought law books and researched insurance litigation for themselves. The real lawyers had to accommodate all this and still keep the action on the right course.

Oiling the litigation along the way was a steady stream of litigation funds, generated by the monthly subscription fees paid by the action group members.

Barry O'Brien, the Freshfields partner who has led the army of solicitors needed to structure the pounds 3.2bn reconstruction and renewal programme, believes his firm was cost effective. He is prepared to say the fee earnt by Freshfields, which has been acting for Lloyd's for more than 200 years, was in the "high teens".

There can be no bigger job undertaken by a law firm. Apart from the pounds 3.2bn settlement involving 32,000 Names, Equitas - the company into which pounds 12bn of liabilities is being transferred - is the largest reinsurance contract ever written.

Dibbs Lupton Broomhead has played a prominent role chasing those Names which have remained outside the settlement. Philip Holden, a Dibbs partner, has been seconded to head Lloyd's financial recovery department. He's arguably had the most stressful job of all the Lloyd's lawyers. "Some Names," he says, "have clearly lost everything through no real fault of their own and you have every sympathy with them. But others have just been playing the system for a long time."

For more than two years, under a system called Tranche 4, Mr Holden has been instructing fellow lawyers at Dibbs to arrange face to face meetings with Names all over the country. Under Tranche 4, Mr Holden and his team have managed to get 3,000 to come to the table and join the settlement. Although they represent only a small proportion of the 34,000 Names, they are an important group. The remaining 2,899 who are still holding out are about to see Mr Holden's other side. "Shortly after the final deadline for payment, members will be proceeded against for the full extent of their liabilities." In other words, the writs are about to fly.

Lawyers have also been called in by those Names who paid up at first time of asking. A small team of Warner Cranston solicitors went to court last month to do battle with Lloyd's vast legal machine but failed to get the High Court to rule that Lloyd's had acted unfairly and beyond its powers in establishing the settlement programme. "They feel very aggrieved that the Names, who contributed most throughout the bleakest days, are now on the receiving end of rough justice," says John Abramson, a senior associate at Warners.

But he adds: "The Lloyd's litigation, for better or for worse, has been valuable for reinsurance and insurance lawyers. The courts have examined aspects of the law which have never been looked at, and now at least there is some certainty." It's an ill wind ...