BALTIMORE - Lloyd's of London will argue in federal appeals court today that a "chain reaction," started by an injunction imposed by a federal district judge, could lead to the financial collapse of the 308-year-old insurance market and damage "tens of thousands" of its policyholders.
In a 51-page brief submitted to the U.S. Court of Appeals here, Lloyd's lawyers contend that the lower-court judge's "misguided zeal" produced an order to make financial disclosures to American members of Lloyd's syndicates by Sept. 23. Such statements, they argue, would "take many months of work" to calculate.
Lloyd's hopes to head off the crisis, which it says jepardizes its $22 billion plan for financial "reconstruction and renewal," by getting the appeals court to stay the injunction. That would let the huge insurance market keep its deadline -- noon tomorrow, London time -- for all of its 34,000 members of Lloyd's syndicates to approve or reject the plan. The injunction gave American members until Oct. 30 to decide whether to join the reconstruction proposal. As part of its reconstruction plan, Lloyd's promises to reduce claims against members who agree to give up legal claims against it and its agents. Lloyd's members -- also known as "names" -- face unlimited liability for insurance claims.
Friday, Judge Robert E. Payne of the U.S. District Court in Richmond, Va., issued the preliminary injunction. In an accompanying 141-page opinion, Judge Payne said American members of Lloyd's were "passive investors" protected by U.S. securitiy laws that require full financial disclosure. Lloyd's asserts that membership "is analogous to being licensed to do business in the marketplace as an insurer."
The flurry of last-minute legal maneuvers has produced confusion among the 2,700 U.S. members, who may not know the decision of the Baltimore court until the deadline passes.
"I've got hundreds of names calling me, asking: 'What do I do?'" said Kenneth R. Chiate, a Los Angeles lawyer and a Lloyd's name who has been a negotiator for U.S. names. Those American names claim Lloyd's insiders put them in some of London's worst-run insurance syndicates. "I tell them: You tell me what the court of appeals is going to do, and I'll tell you what to do."
Mr. Chiate asserts Lloyd's is making a "Chicken Little" argument. The insurance market can prevent its financial sky from falling by using money it has borrowed as a kind of bridge loan until the American dispute has settled, he said.
In its brief, Lloyd's denies that it has enough borrowed money. The injunction could force it into a "market run-off," in which claims will increase while new policy premiums stop, it said. That would "have devastating" effects on the U.S. insurance market and on policyholders," Lloyd's stated.
Ultimate Risk book review
Book review table of contents
back to home page