The Baltimore Sun
August 28, 1996
LloydŐs can proceed with recovery plan
Appeals court halts injunction obtained by U.S. investors
Settlement deadline today
Huge losses from asbestos, pollution cases rocked insurer
Author: Jay Hancock; SUN STAFF
A federal appeals court in Baltimore reversed a ruling against LloydŐs of London yesterday, clearing a last-minute obstruction to LloydŐs recovery plan and disappointing hundreds of U.S. investors who claim they were cheated in the famous British insurance market.
After a three-hour hearing, a three-judge panel of the U.S. 4th Circuit Court of Appeals tossed out a temporary injunction, issued Friday by a lower court, that blocked LloydŐs $4.8 billion rescue plan and seemed to open the door to a flood of lawsuits against LloydŐs in U.S. courts.
In overruling U.S. District Judge Robert E. Payne in Richmond, Va., the 4th Circuit panel said LloydŐs investors should be held to contracts they signed agreeing to pursue disputes in British courts only.
With that threat shrunken by yesterdayŐs decision, LloydŐs managers continued to press investors to support its scheme to raise capital to cover huge losses incurred by many of the marketŐs syndicates. The deadline for investors to sign on to the plan was noon today, London time.
Late yesterday, LloydŐs said that more than 80 percent of its 34,000 members around the world had accepted the settlement. ŇI am confident that the acceptence level will have increased yet againÓ by today, said LloydŐs Chairman David Rowland.
LloydŐs had said it needed approval from Ňa substantial majorityÓ of investors by today to meet British solvency requirements.
Peter Lane, LloydŐs managing director for North America, said only 53 percent of American names, or investors, have accepted the plan, a low percentage he attributed to confusion created by the lawsuit. LloydŐs plans to extend todayŐs deadline informally for American names, provided that other names continue back the plan in high numbers, Lane said.
For LloydŐs 3,000 American investors , including 35 Marylanders, yesterdayŐs decision, delivered by Judge Paul V. Niemeyer, slammed a brief hope of successfully suing LloydŐs in U.S. courts.
LloydŐs American members argue that they should be able to seek redress for fraud under U.S. securities laws. They contend that billions in losses from asbestos and pollution cases were intentionally and secretly loaded onto their backs by LloydŐs London managers.
In a surprise ruling Friday, Judge Payne favored the U.S. investors. He made LloydŐs give them an extra two months to review the settlement proposal, and he ordered LloydŐs to supply more detailed financial information about it.
At the same time, Payne said he found significant evidence that LloydŐs had broken U.S. securities laws and that American investors should have their cases tried in U.S. courts.
In overruling Payne, the 4th Circuit panel said LloydŐs investors should be held to contracts they signed agreeing to pursue disputes in British courts only.
Jack Shettle Sr., a retired insurance executive and head of a group of Maryland LloydŐs members, said it would be impossible to prevail in British courts.
ŇIf we took on LloydŐs over there, it would cost us in the vicinity of $1 million,Ó he said. ŇOur chance of winning there is zero. And if we lost, weŐd have to pay the other sideŐs costs. So here we have LloydŐs fighting against us with our own money.Ó
The investors havenŐt given up and say theyŐll continue to try to sue LloydŐs in the United States.
A. Stephens Clay, a lawyer who represents 93 LloydŐs investors in the Virginia case, said he may appeal to the U.S. Supreme Court or file new motions in lower courts.
LloydŐs crisis has slowly unfolded in lawsuits and insurance accounting statements over the last 10 years. In the marketŐs unusual system, investors assume unlimited liability for insurance claims -- down to their last penny.
As $12 billion in asbestos, pollution and other claims piled up, disputes arose about who would pay.
The marketŐs restructuring plan would place money-losing policies into a new company, called Equitas Group, and allow investors to discharge their huge liabilities.
But Equitas must be capitalized first, partly with $4.8 billion raised by LloydŐs and partly with payments -- some more than $100,000 -- from investors. Investors who accept the plan must also give up their right to sue LloydŐs.
Pub Date: 8/28/96