By Nicholas Bray and Jonathan Moses. The Wall Street Journal (Eastern edition), New York, N.Y., Aug 30, 1991, pg. B.3
Lloyd's of London faces a potentially damaging legal wrangle in the U.S. over allegations that it may have violated U.S. securities laws in its recruitment of U.S. citizens as investors.
A federal court in Denver is to open hearings today to determine whether it has jurisdiction in a lawsuit against Lloyd's filed by one of its "names," as investors on the London-based insurance market are known. The suit alleges such violations.
Separately, a number of other Lloyd's investors in the U.S. have made known that they are considering parallel legal action against Lloyd's on similar grounds. One of them, John Steiner Roby, an insurance agent of Mansfield, Ohio, wrote to other Lloyd's investors this week seeking support for such action.
Investors, who personally back insurance policies written at Lloyd's, have suffered large losses recently. Lloyd's tough times are due in part to heavy recent claims connected with assorted disasters, wars and asbestos-related illnesses.
Confronted with current losses, a number of U.S. investors have complained that they joined Lloyd's without fully realizing the risks involved, chief among them accepting unlimited liability for claims.
In a statement, Alan Lord, Lloyd's deputy chairman and chief executive officer, said he was "astonished" by the threatened legal actions in the U.S. Lloyd's, he said, has begun legal moves in Britain seeking court orders restraining litigants from continuing with U.S. litigation or encouraging other investors to sue Lloyd's.
"Since January 1987," he said, "all existing and new Names at Lloyd's have signed an agreement that any disputes they may have with Lloyd's are subject to the exclusive jurisdiction of English courts." As a result, Lloyd's maintains that U.S. courts haven't any jurisdiction in disputes between Lloyd's and its investors.
Lawyers acting for U.S. investors in the threatened suits disagree, however. Because the cases raise concerns about how U.S. investors should be protected under U.S. securities laws, "they can appropriately be brought in a U.S. court," said Minna Schrag, an attorney at the New York firm of Proskauer Rose Goetz & Mendelsohn, which is advising Mr. Roby and others.
"We are convinced that these names have valid legal claims," she added, referring to the litigation under study by Mr. Roby and others. "We are quite confident that if the lawsuit goes forward the hearing will be in the U.S.," she said.
The hearing in Denver relates to a suit by Lloyd's investor Ronald H. Riley. He is understood to have run up losses of several hundred thousand dollars since becoming an investor in 1980. According to his lawyer, Mr. Riley is seeking to void his Lloyd's membership by suing Lloyd's for failing to register membership in the market as a security with the U.S. Securities and Exchange Commission. He also has accused Lloyd's of omissions and misrepresentation of facts in relation to his initial decision to join Lloyd's.
In response to complaints by Lloyd's investors, the SEC has opened a preliminary investigation, requesting information from investors concerning their Lloyd's membership.
Lawyers for Lloyd's deny any infringements of SEC rules, asserting that there have been repeated consultations with the SEC and that Lloyd's agents have complied fully with U.S. regulatory requirements.
Lloyd's 2,000-odd U.S. members account for fewer than 10% of the market's current total membership of 26,558. But the dispute comes at a delicate moment for the world's oldest and most prestigious insurance market, which already is suffering from an exodus of investors because of heavy losses.
The market was founded in a London coffee house -- Lloyd's -- early in the 18th century; currently, it has annual premium income totaling #8 billion ($13.52 billion).
Earlier this year, Lloyd's reported its first deficit in more than 20 years, a global 1988 pretax loss of #510 million, or $862 million at today's exchange rate. Losses for 1989 aren't yet known but are expected to be significantly higher. Lloyd's reports three years in arrears to allow claims to come in.
Meantime, Lloyd's is facing a rash of litigation in Britain. Earlier this year, it was taken to court for the first time ever to answer charges of negligence by investors in one of the several hundred syndicates that make up the market. Other cases await to be heard.
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