Lloyd’s Barred From Forcing Rescue Plan

A federal judge on Friday night enjoined Lloyd’s of London from imposing its $4.7-billion rescue plan on U.S. investors and ordered a trial on the investors’ charges that critical financial information has been withheld about the restructuring of the storied insurance market.

But U.S. District Judge Robert E. Payne did not block U.S. investors from accepting the deal if they so choose.

Payne issued a preliminary injunction and lengthy opinion, which denied Lloyd’s attempt to throw out the investors’ case.

Significantly, Payne found Lloyd’s in violation of U.S. securities laws by recruiting American investors through the mail for the elaborate restructuring plan.

In an attempt to strike a balance with Lloyd’s interests, Payne said the insurer “is entitled to as much latitude in continuing with its reconstruction and renewal plan,” so long as its actions abide by U.S. securities laws.

The settlement, three years in the making, was to be approved by Lloyd’s 34,000 investors worldwide by Aug. 28. But Payne’s preliminary injunction extended the deadline to Oct. 30 and instructed Lloyd’s to release financial records on the plan to its 2,700 U.S. investors, known as Names.

Failure of the settlement could leave Lloyd’s insolvent, likely ending a legend in the world’s financial system. Over three centuries, Lloyd’s has been insuring everything from airports and oil rigs to college football players and Bruce Springsteen’s voice.

Payne held a two-day hearing earlier this week on the suit by the investors.

The suit, backed by about 450 American investors, seeks to force Lloyd’s to provide more details about investors’ financial obligations under the settlement. Investors want documentation for the insurance losses Lloyd’s claims they have incurred.

Lloyd’s lost more than $12 billion between 1988 and 1992 from pollution and asbestos claims, as well as natural disasters, leaving thousands of investors in desperate shape.

The plan would put their money-losing policies into a new reinsurance company, thereby allowing the investors to exit Lloyd’s and limit their losses.

In contrast, those who become Lloyd’s Names pledge their entire net worth to make good on the insurance polices they agree to underwrite.

There’s a price to getting into the new reinsurance venture, a premium of up to $150,000. In addition, Names have to agree not to sue Lloyd’s or its agents for policies covered in the settlement.

Investors fear they may be shut out of court if they sign the settlement.

The settlement documents contain broad legal disclaimers in which Lloyd’s and various committees that prepared the report deny responsibility for “any loss occasioned by any person” who relies on financial information or statements within the thick, densely worded plan.

The hearing featured testimony from two American investors in Lloyd’s, as well as the insurance market’s chief executive, Ronald Sandler, who predicted dire consequences if investors won the suit.