Double trouble is brewing for Lloyd's rescue plan

The strange case of a pair of identical 80-year-old twins, the Vine brothers, has come back to haunt David Rowland, chairman of Lloyd's, just as it seemed the insurance market's nightmare was almost over.

Mr Rowland has admitted on several occasions that the pounds 3.2bn rescue of Lloyd's includes some rough justice, in that it has been impossible to be fair to everyone, given the time and the money available.

But he maintains that the market is doing the best it possibly can in the circumstances. If the rescue plan is not approved in time for the annual test of solvency by the Department of Trade and Industry, due at the end of this month, then Lloyd's may have to stop taking new business.

But is Mr Rowland's best good enough? Peter and Colin Vine believe not only that Lloyd's could do better, by finding more money, but also that the rescue plan has gone beyond unfairness and into the realms of illegality.

They are part of a group of names, as the members are called, which is to apply to a judge early next week for permission to go to judicial review of Lloyd's "reconstruction and renewal" offer.

The twins are identical in more than looks. They joined the merchant navy together in 1932, they served in Royal Navy minesweepers during the war and in 1964 they both joined Lloyd's, where they were members of the same syndicates.

By 1990, when Lloyd's difficulties were reaching a climax, these syndicates produced identical losses for each of them.

Colin Vine became one of the "honourables", as they are called at Lloyd's, by drawing on his outside capital to pay his losses.

Peter Vine did not pay, and became one of the thousands of names in the awkward squad, whose refusal to dig into their pockets eventually forced Lloyd's to find that pounds 3.2bn.

Yet, on preliminary estimates, the rescue offer leaves Peter Vine pounds 124,000 better off than his brother, who paid his debts. Together, they have become prime exhibits of the Paying Names Action Group, the organisation seeking a judicial review. There are, according to Tony Welford, the name who chairs the group, some much worse cases, though it is unlikely that any as transparently unfair as this one will crop up.

For example, one action group member claims it will cost him pounds 1m to settle the offer but, if he had refused to pay, the bill would have been pounds 400,000.

Lloyd's is certainly not disputing the fact that there are some serious anomalies in the rescue proposals, of which discrimination against the paying names is the most glaring.

Mr Rowland, nevertheless, has a powerful case, arguing that as a practical man he and his colleagues have done the best they possibly can. He has been forced into compromise and arm-twisting at every turn, by the reality of life in the market. There is unfairness on both sides of the balance sheet - among those finding the money for the rescue as well as those receiving it.

For example, among the market professionals, a large number of those most to blame for the losses have gone out of business or did not have sufficient insurance against lawsuits from their clients. The burden falls more heavily on the better run and more profitable insurance firms that survived unscathed.

Agents, brokers and auditors have escaped lightly, paying what looks an extremely modest pounds 430m towards the pounds 3.2bn cost.

Much of the financing for the rescue is simply a redistribution of the pain around the market, ultimately to its individual members, rather than new funds from outside.

Of the total, pounds 800m comes from insurers who covered Lloyd's agents against lawsuits from customers, many of whom have already sued successfully in the courts. But most of those insurers are ultimately Lloyd's names.

Most of the balance will be financed directly or indirectly by names, including pounds 440m from those underwriting in the profitable years 1993-95, the proceeds of the sale of Lloyd's properties, contributions from the central fund and a levy on members to pay for a pounds 300m bank loan.

Indeed, this financial reconstruction is a masterpiece of ingenuity, beside which the attempt to rescue Eurotunnel seem simple. Mr Rowland is making ends meet with resources that are less than they seem and he and his colleagues have done it with brilliant ingenuity.

The vast bulk of the membership appears from the evidence of preliminary votes on the plan to be willing to ignore the blatant unfairness, in return for a settlement that will allow them to forget the past, and draw a line under an episode that cost pounds 8bn in losses.

An analysis of the distribution of the rescue funds shows why the vote will be overwhelming. Of the total membership, 12,500 will pay nothing and some of those will receive a cheque; 7,200 will pay no more than pounds 25,000, 4,100 less than pounds 50,000, 3,500 less than pounds 100,000 and only 4,400 more than pounds 100,000.

In total, more than pounds 2bn of debt is being written off, but for the vast majority of members a very large potential burden will be capped at a manageable cost. No wonder they are likely to vote in favour.

The real question behind the judicial review, if the paying names are granted one, is not about the vote, which is a foregone conclusion, but about whether a majority can override the rights of a small minority of at most 3,000.

On the basis of the examples they have put up so far, the paying names have a strong case for improved treatment.

But Lloyd's claims it is too late, that there is no money available and that it is impossible to rework the offer - which takes three weeks to number-crunch for individual names - in time for the voting deadline on 28 August.

The paying names, however, have been given good reason to believe that when its back is to the wall Lloyd's is likely to find some more. If they make any progress in court, they will probably be proved right.

Lloyd's offered pounds 40m to US names as a sweetener last month, to persuade state securities regulators to drop court actions that could have excluded 2,400 American members from the rescue. Lloyd's also found a comparable amount recently to provide pensions for names who have lost everything.

It is certainly hard to understand how the glaring anomalies highlighted by the paying names have not produced a more generous response. Whichever way the courts decide, a judicial review will highlight this embarrassing fact at the most awkward of times.