Lords open floodgates on Lloyd's actions: Judgment removes six-year limit on syndicate members' lawsuits

A HOUSE of Lords ruling yesterday opened the way to many more actions against Lloyd's of London agencies and auditors by extending the period in which cases can be brought.

The Gooda Walker Action Group was the first to take advantage of the decision. It announced that 3,095 investors in the lossmaking Gooda Walker syndicates intended to sue the auditors Littlejohn Frazer for negligence.

The Lords decision came in a test case appeal brought by several Lloyd's managing and underwriting agents. The five Law Lords ruled that professional advisers, such as Lloyd's agents, were bound by a duty to exercise reasonable care as well as their contractual duties. Plaintiffs could choose to pursue whichever course of remedy would be most advantageous to them.

The judgment means that names will no longer be bound by the six-year limitation on suits brought under contract law - a particularly tight limit since Lloyd's announces its results three years in arrears.

They will instead be able to take advantage of a 12-year limit. They can also benefit from the Latent Damages Act of 1986, which allows the legal clock to start ticking after the discovery of alleged negligence rather than its commission.

Michael Deeny, chairman of the Gooda Walker action group, said: 'This is a wonderful day for Lloyd's names. The House of Lords has enabled names to sue for acts of negligence that happened many years ago and have only been uncovered recently.'

Mr Deeny said proceedings would be issued in September and the claim for damages would exceed pounds 100m. The new Gooda Walker claim concerns the use made by former group managing director Derek Walker of 'time and distance' policies to increase the reported profits of his syndicate 290 in the 1980s. The names will contend that the accountants failed in their duty to draw attention to the policies.

The Lords ruling will also boost the legal chances of names on 'long tail' syndicates making losses through pollution and asbestos-related claims on policies written long after the event.

There are 13 such cases lining up for hearings in the Commercial Court. Before yesterday's decision more than half of the potential Lloyd's litigation could have been time-barred.

The House of Lords also ruled yesterday that members' agents, who place names on syndicates, are liable for the negligence of the managing agents who run the syndicates. This gives names access to about pounds 1.1bn of members agents' errors and omissions - professional liability - cover if their cases are successful.

The Lords' ruling came as closing arguments began in the Gooda Walker trial in the High Court. Mr Justice Phillips, the trial judge, said yesterday he had sympathy with expert evidence suggesting that catastrophe underwriting - known as XL on XL, or spiral, business - was an aberration.

Referring to evidence given by the expert witness for the names claiming damages from the agents who put them on loss-making Gooda Walker syndicates, Mr Justice Phillips said: 'Says Mr von Eicken, the competent insurer will not write XL on XL save that he may go into the market for a bit of excitement . . . I am bound to say at the moment I have a lot of sympathy with (this).'

Geoffrey Vos, QC for the names, submitted that the Gooda Walker underwriters 'wholly ignored basic principles of reinsurance underwriting'.

He said they had not tried to make an assessment of what claims they might face and had not formulated a proper policy for buying their own reinsurance cover.

The case continues.