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Equitas, the reinsurance vehicle created by Lloyd's of London, has raised the prospect of being bankrupted by the settlement of asbestosis liabilities in the US of up to $140bn (£75bn).
This could lead to further bills for thousands of Lloyd's Names who hoped the creation of Equitas had closed the book on their nightmare investments at Lloyd's.
The US Senate will decide this week on whether it will debate The Fairness in Asbestos Injury Resolution Act, a proposal put forward by a committee led by Republican Senator Arlen Specter that would create a fund to settle all asbestosis claims.
Senator Specter has proposed a fund of between $46bn and $140bn to cover all claims going back as far as the 1960s.
Many of the liabilities were insured at Lloyd's and were moved into Equitas as part of the "Reconstruction and Renewal " reform in 1996. Equitas has been settling demands on a piecemeal basis but could be liable for as much as 20 per cent of the payments into the asbestosis fund.
Though the payments would be spread over as many as 27 years, they could wipe out Equitas's reserves. These stood at $7.4bn in March last year, but have been reduced by around $1bn of settlements since then.
In testimony before the Senate Committee on 11 January, Equitas's legal representative, Jeffrey Robinson, opposed the Bill as Equitas would be the only contributor that would be allowed to go bankrupt if it could not afford the sum demanded.
This is because the US Senate argues that it can go back to the Names whose liabilities were reinsured with Equitas, and claim any shortfall from them. Names would be faced with bills running, in some cases, into hundreds of thousands of pounds.
"We believe our asbestos reserves are adequate and appropriate," said an Equitas spokesman. "If there is a fair and impartial commission [to decide who pays what], we will be able to pay. We will continue to strenuously oppose the terms which leave Equitas the only company not protected from being made insolvent as a result of the Bill."
Nine years on from the R&R agreement, Names are still fighting Lloyd's. Having lost a series of battles in the UK courts, they are taking the cases to Europe. The first, a challenge to Section 14 of the Lloyd's Act 1982, which prevents Names from suing Lloyd's, has been filed at the European Court of Human Rights. It will decide in the next few weeks whether to hear the case.
If the Names win, the UK Government can refuse to accept the ruling, but this would cause a massive political row. If it does accept the ruling, the UK Government could face claims for billions in compensation, and a number of previous legal actions, brought against Lloyd's, could be reopened.