Letter to the editor
In response to article in the September 22, 1997, issue of the San Francisco Daily Journal titled, "Will the ‘Names" pay?
San Francisco Daily Journal
‘Names' Dispute Won't Affect U.S. Insurers
You are to be congratulated on the well-balanced article, "Will the Names Pay" (Sept. 22). I wish, however to clarify some major errors in the presentation.
There were never 34,000 American investors in Lloyd's; that was the number of worldwide investors. American investors amounted to 3,200 of whom some 275 have not settled and are litigating in the 9th U.S. Circuit Court of Appeals. A major court victory by these 275 investors would not have the slightest effect on U.S. insurance companies, policyholders or even the future of Lloyd's.
The basic premise of the article is incorrect and illustrates the misinformation being circulated by Lloyd's and California Insurance Commissioner Chuck Quackenbush. No U.S. "name," in or out of the reinsurer Equitas, litigating or not, can avoid direct contracts with policyholders, and the contrary has never been suggested by the U.S. investors.
It is precisely for that reason that the 275 investors are suing Lloyd's for having deliberately shifted asbestos and other known losses from themselves onto unsuspecting, passive U.S. investors thereby earning for key executives of Lloyd's largest syndicates inordinate additional profits while bankrupting U.S. citizens, most of whom were of modest means.
You quote Lloyd's attorney Dean Hansell of LeBoeuf, Lamb, Greene & MacRae to the effect that the names had substantial Lloyd's earnings in the 1970s and 1980s. The recent losses transferred to passive investors exceed all the profits in Lloyd's history.
In fact, there never were such earnings because Lloyd's did not reserve in the 1970s and 1980s for the known incurred asbestos and pollution losses. They made a conscious decision to conceal this information, because reserving for these major losses would have produced no earnings; hence, they would not have been able to recruit 21,000 new, innocent, passive investors using large nonexistent earnings as a selling feature.
Equitas, the reinsurance company created by Lloyd's to deal with the asbestos and other runoff for the years prior to 1993, has been fully funded and has been declared by its management and the U.K. Department of Trade and Industry to have an increasing surplus and an excellent outlook for handling those past claims.
The Richards v. Lloyd's lawsuit brought in the 9th Circuit by the American investors is against Lloyd's itself, which no longer has any relationship or liability connection with Equitas or with the years prior to 1993. As far as subsequent risks to Lloyd's and its policyholders, last year Lloyd's declared a profit of £1.8 billion, which compares favorably with similar type earning for the previous year. An all-out victory by plaintiffs in the 9th Circuit would have not appreciable effect upon these substantial Equitas reserves and Lloyd's earnings.
The 9th Circuit lawsuit does not effect any other Lloyd's investors nor the insurance industry in the United States or worldwide. The case is about nondisclosure of vital, known information to innocent passive investors. The issue before the 9th Circuit en banc panel is whether or not the anti-waiver clause of the Securities Acts of 1933 and 1934 can be waived, with respect to the sale of a securities to an American citizen in the United States.
Also to be heard will be the question as to whether fraud in the inducement to sign a forum-selection or choice of law clause can be heard in U.S. courts, and whether or not Racketeer Influenced and Corrupt Organizations Act statutes can be applied to a fraudulent nondisclosure.
Victor H. Beauzay
Editor's note: Mr. Beauzay's statement about the number of American names who invested in Lloyd's underwriting syndicates is correct. The worldwide participation grew from 6,000 to 34,000 between 1970 and 1990, with American investors making up 3,196 of the names. The current lawsuit stems from the remaining names who have not settled with Lloyd's, approximately 300 American plaintiffs.
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