Lloyd's plans spark storm: 17,000 members join action groups to seek redress Limited liability plan aims to attract investment

DEEP divisions have opened up in the Lloyd's of London insurance community over new proposals to rescue the market from financial collapse.

Following last month's ambitious business plan to provide Lloyd's with money to allow it to continue its operations, two further reports designed to provide more precise details on how the market can be salvaged have provoked a storm of controversy.

The reports have been prepared by two panels appointed by Lloyd's who were asked to seek ways to resolve legal action launched by the members against companies responsible for their affairs at the market and how to provide more certainty for underwriting members facing unquantified losses.

The members have alleged negligence in the conduct of their affairs and are seeking restitution for the pounds 5bn of losses they have suffered and a further pounds 1bn of losses that are predicted to hit the market next year.

According to the reports, at least 17,000 underwriting members out of Lloyd's 20,000 membership have joined action groups to seek redress.

One of the panels has suggested that a new subsidiary, Recovery Limited, would take over the rights of all Lloyd's members to pursue legal action. The company would attempt to resolve the disputes largely through negotiation and arbitration. Members who participated should be given a financial credit to fund their cash demands to meet their obligations at Lloyd's. The panel estimates that there is a shortfall of up to pounds 1.2bn between claims and the amount members can be expected to recover from insurers who have provided cover for the companies the members are suing.

However, Peter Middleton, Lloyd's chief executive, has criticised the 'legal solution' proposals. 'The task of 'Recovery' would be to recover money from one group of members on behalf of other members. At the moment we do not see how this proposal can be compatible with obligation of the council (which governs Lloyd's) to act even-handedly for all members.'

Another report has prompted a warm response from Lloyd's but dissent among the panel that produced it. This report relates to Lloyd's 'open years' where underwriting members are trapped on insurance syndicates that cannot close their books because of financial uncertainties. More than 100 syndicates have a total of 163 years of such accounts. Lloyd's proposes that a new company should be created to take on the liabilities of the open years.

Claud Gurney, a member of the 'open years' panel, does not consider this report to be radical enough. He has told Mr Middleton in a letter: 'The panel has failed to come to grips with the ethics of continuing to milk money from Names (the underwriting members) when they personally know that Lloyd's is bust already.'

Meanwhile, there are signs of a revolt among Lloyd's approved auditors. There were suggestions yesterday that with pounds 2.8bn of losses looming in the market many had decided that they could not sign off the trading accounts for 1990.

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