Names take Lloyd's to court

Lloyd's of London has to defend itself in court against charges of fraud.

In a civil case, a group of Lloyd's investors - or Names - claim they were misled about pending losses when they joined the market.

Names are individuals who back the insurance market with their own wealth.

The action has been brought by a group of about 200 of them, led by Sir William Jaffray.

The group refuses to accept the settlement of huge losses which in the 1990s threatened the 300-year-old market's existence.

The landmark case was supposed to start last year, but had to be postponed because of the volume of evidence involved.

It is taking place at the High Court in London before judge Mr Justice Cresswell. It is expected to run until the end of July, with a judgement some time in the autumn.

Recruitment questioned

The Names say Lloyd's engaged in a campaign of "recruit and dilute" which recruited new Names with the aim of off-setting anticipated losses in the 1980s, without warning those they recruited of the losses to come.

Lloyd's is alleged to have known about most of the losses, some £4bn, which involved asbestosis claims from the US.

Total losses in the 1980s ran to about £8bn.

The Names were also hit by a run of disaster claims, including the 1987 UK hurricane and the Piper Alpha oil rig disaster.

About 95% of the market's total 34,000 Names signed up when the losses were transferred to a reinsurance vehicle, Equitas.

Equitas was set up by Lloyd's to manage the run-off of pre-1993 liabilities, paying premiums of £100,000 each.

Some 1,700 refused to transfer to it.

Of those, about 600 were successfully sued by Lloyd's.

In 1997 a group led by Sir William Jaffray counter-claimed against Lloyd's, alleging they were recruited on the basis of misrepresentation.

Collectively, the group is said by Lloyd's to owe about £51m.

Apart from the formal opening of the case on Monday, the first week has been set aside for reading the case papers in the action.

A long list of witnesses is expected to be called, including former chairmen, deputy chairmen and committee members of Lloyd's.

The total legal costs of the case could reach £25m ($40m), according to some estimates.