1981

0 Jan 81

The Insurance Advocate published an article by Mr Lanzone of the New York Bar, which inter alia states ; "Insurers express dismay with a Tort system which seeks to impose unanticipated and unlimited liabilities on manufacturers who as insureds then proceed to transfer these liabilities to their insurers. Various insurers and reinsurers regardless of size and capacity must be deeply concerned with the potential consequences presented by the asbestos claims." And further on Under the heading "A Real Problem": "The problem is real. Legal commentators have fully discussed the exposure and the potential. All that remains for the industry to recognise the clear and present danger that has resulted from the delays in the disposition of these cases and the financial instability and uncertainty that will undoubtedly result should a solution not be promptly found and implemented." These warning bells about the possible consequences of asbestosis in relation to the solvency of the insurance industry itself came to be sounded more loudly, as Mr Lanzone further on stated: "In recent years I have heard various insurers throughout the world express their concern over the number of asbestos claims and the incalculable risk they presented to the insurance industry."

0 Jan 81

Lord, Bissell & Brook : Report number 2 from Attorneys to the interested reinsurers of the Home in respect of Johns-Manville and inter alia state:

We now attach as an Appendix to this report a copy of our report number ... which will provide some background information for the reinsurers through Sedgwick North America Limited ... We regret to advise the excess reinsurers that the situation has materially worsened since our last report. The number of claims against the insured has increased sharply and there have been several large settlements made and verdicts returned against the insured which portend purely for future litigations. (And they refer to the Forty-Eight decision in favour of the exposure theory, and request each reinsurer to carefully consider his own reserve on these claims)

In addition the United States Court of Appeals for the sixth circuit handed down its decision last October in the INA- v- Forty Eight insulations case holding that liability coverage for the asbestos-related bodily injury claims attaches on the date of exposure to the products rather than on the much later date of manifestation of disease....

In this connection, (and this is something which they generally remember to include hereafter on each occasion they report to the market) we should emphasise that the above recommended reserve does not attempt to include loss or expense reserves for future bodily injury claims that may subsequently be brought against the assured

Finally we must report that the primary insurer is now maintaining that aggregate limits on three of its annual periods have been exhausted and it cautions that the exhaustion of its limits for all other years is imminent. It thus appears that the Reinsured may become in effect a primary insurer with defence obligations in the very near future. For these reasons we are recommending herein a substantial reserve increase to the excess reinsurers.. The primary insurer maintained that an adverse relationship exists between itself and the reinsured and that therefore the reinsured is not entitled to review the individual bodily injury claims files. Hence the reinsured has not seen the primary insurers loss runs and does not know the precise number of claims or the current number of closed claims or average loss payments and expenses..

Recommendations for future handling: we request each reinsurer to carefully consider his own reserve on these claims. In this connection we should emphasise that the above recommended reserve does not attempt to include loss or expense reserves for future bodily injury claims that may subsequently be brought against the assured. Please refer to page 14 of our report number I where we set forth estimates of others indicating the possibility that a great number of claims maybe brought in the future.

(That is the Califano and Selikoff estimates, and from hereon the attorneys make it quite clear, quite rightly, that their loss reserves are simply predicted on the basis of claims about which they know).

Similarly, the indicated reserve does not take into account the indemnity or contribution claims that may have been brought by other asbestos manufacturers against the assured as a supplier of the asbestos which is alleged to be an inherently dangerous product.

0 Jan 81

LloydĂs UnderwritersĂ Non-Marine Claims Office (LUNCO) Circular no. l. Circulates reports of Attorneys asbestos related claim review correspondence.

2 Jan 81

R W Sturge & Co: Circular letter from D E Coleridge, chairman, to agency members

You will be receiving with your copy of the January issue of LloydĂs Log an invitation from the Steering Committee of the Association of External Members of LloydĂs to apply for membership of this Association which includes a subscription of ˙50 for 1981 and, if you so wish, to contribute more by way of an interest free loan.

I feel it might be helpful to remind you of the Chairman of LloydĂs remarks at the General Meeting of Members held on November 19th, a full copy of which you will have already received from this Agency. An extract from the speech, which refers to the proposal for such an Association, is attached for your convenience.

This Agency fully supports the sentiments expressed by the Chairman in his speech. We strongly believe that an External Name should not be regarded as a mere "Sleeping Partner" but that it is primarily the responsibility of the Agent to keep his Names informed of all matters which may concern them. As you are well aware, this Agency has always given special attention to communications with our names in particular through our Annual Meeting of Names, held in the CaptainsĂ Room , the reports of which are circulated and also through the regular personal visits made to our many Overseas Names in the United States. The result of having a special Association for external Members could prove to be confusing; there could well be a conflict of views expressed by the Agent and the Association on matters where the Agent is better qualified to advise in LloydĂs terms and, in any case, the Agent should retain a traditional and privileged link with his own Names.

Moreover any Member has always had the right to call on the Chairman of LloydĂs or another Member of the Committee if he or she has had a problem to which their Agent was unable to give a satisfactory answer. This privilege will naturally extend to the proposed new Council on which there will be six External Members. The Corporation of LloydĂs also has specialist departments; of particular importance to Names is the Taxation Department where special arrangements on behalf of all LloydĂs Members are made with the United Kingdom Inland Revenue, the Internal Revenue Service of the United States and many other foreign Governments and it is, therefore, most important that any discussions with those Government bodies are only carried out through LloydĂs official channels.

I believe, therefore, that membership of this Association would not be in the best interest of our Names nor indeed of LloydĂs as a whole.

If you agree with the views expressed above, it would be helpful if you would write to the Association to say so; otherwise, there could be a danger of the views of what I believe to be the silent majority not being heard.

5 Jan 81

Letter from G M V Winn to Peter Green, chairman of LloydĂs

Thank you for your letter dated 22nd December, 1980. I shall of course be very interested to read the paper which you are having prepared for the Committee regarding Clause 11 of the Bill.

As I understand it, Clause 11 will effectively put LloydĂs offices and employees above the law. This is quite unthinkable as, at present, only the Monarch is in this happy position and so it should remain.

No other Society such as my own and the Stock Exchange finds it necessary to put their members above the law. I certainly would not wish to belong to one that did.

Clearly, if the present Bill is presented to Parliament with Clause 11 included, LloydĂs would put itself in a most invidious position and the Bill would almost certainly fail. I am most anxious for the Bill to proceed smoothly and it is for this reason that I must continue to ask you to remove this Clause from the Bill and at the same time, wish you a Happy New Year.

9 Jan 81

Lord Chief Justice of England: Letter to Major-General J M D Ward-Harrison

Thank you for your letter of the 7th January last.

I appreciate your concern about the extract from the Bill to establish a Council of LloydĂs, which you cite in your letter. I do not, however, share your concern about the immunity which it grants to the Council of LloydĂs. As I read the section, all it does is to give an immunity vis-à-vis other members of LloydĂs, or people working for them, and does not extend to any immunity outside that particular coterie. In those circumstances, I do not think it is necessary for me to take any action.

However, even if I were concerned, as you are, about the possible effects of the Bill, it would not be my province to intervene.

I suggest, if you are still bothered about the matter, you should get in touch with your own Member of Parliament, who would be the right person to raise any questions on the matter in the House during the progress of the Bill to the statute book.

In any event, it was good to hear from you after all these years.

23 Jan 81

House of Commons: Letter from Nicholas Lyell, QC., MP.

I enclose a note on the problem of exercising discipline over fraud at Lloyds. In a recent letter to Peter Brooke MP in relation to clause 11 (immunities) the Chairman speaks of Fisher recommending immunity "on the grounds that the Council and the Committee should, in the future, intervene to a greater extent in the workings of the market in laying down and enforcing rules on the conduct of insurance business and to maintain standards by control over admission and discipline".

This is what we want the Council to do. The question is has it the teeth under the current Bill?

In my note I suggest an obligation to disclose misconduct on members. Personally I do not think this unreasonable, though some feel that it is unreasonable to impose a duty which might involve an individual in incriminating himself. What I do consider essential is that the broker or other employee who may currently be hamstrung under the law of agency has a right under the rules to report such matter.

The Lloyds Bill - Fraud

The object of the Bill is to provide a new and effective framework within which Lloyds can regulate its own affairs in accordance with present day requirements and practice and the interests of its policy holders.

The underlying principle is one of self-regulation by a Council of Lloyds with disciplinary powers.

This paper is concerned with the ability of the Council adequately to investigate and control the incidence of fraud insofar as anyone entitled to do business at Lloyds may be involved.

The investigative and disciplinary structure ought to be able to bear on:

a) The knowing presentation of fraudulent claims; and

b) The fraudulent introduction of business or the connivance by those entitled to work at Lloyds in the introduction of or continuation of business in circumstances where they have reason to believe that the full facts surrounding the nature of the risk or the level of premium being charged to the insured (particularly overseas) is not being revealed to underwriters.

It is felt by myself and other Members that Lloyds must be astute to ensure that the provisions of the Bill and/or the bye-laws to be made under it must be such as to provide all the powers needed to combat the problem, and be couched in such terms as to demonstrate the will and duty of the Society to do so.

Fraud of both types is difficult to trace and to prove, particularly in a court of law. The Council will require extensive power to acquire disclosure by members, brokers and their employees; to investigate any matters reported; and will also require a wide ability to discipline anyone found to have transgressed. We wish to be satisfied that adequate powers exist or will be written into the Bill or bye-laws.

The Presentation of Fraudulent Claims

The need for disciplinary control of the kind exercised by similar bodies in other, professions - e.g. the Senate of the Bar or the General Medical Council - is clearly indicated by implication in paragraph 1333 of the Fisher Report which highlights the dilemma of a broker requested to process a claim which he knows or suspects to be fraudulent. The law of agency prevents him from informing the underwriter of his knowledge or suspicions.

There is therefore a need for a higher authority to whom the broker not merely can go but should be under an express duty to go if he has grounds to suspect fraud. Without this discipline a small but deeply troubling minority of market operators can only be encouraged to connive in or at least turn a blind eye to fraudulent practices, contrary to the long term interests of the market, and contrary in the end to the ability of Lloyds to continue to operate, as we would wish it to operate, as a self-regulating body.

The Introduction of Business Tainted with Fraud

It is fundamental that insurance is conducted on the basis of full disclosure and utmost good faith between the assured via his broker and the underwriter. If utmost good faith can be impeached the policy can be avoided. But anxiety for premium income has encouraged laxity and the connivance by some brokers, some company agents with authority to write business, and even perhaps some underwriters, in the introduction of business which ought to have been regarded with deep suspicion on account of the true nature of the risks being written or of the secret and untoward difference between the level of premium being charged to the insured and premium reaching the insurer or re-insurer.

It ought to be a clear rule of the Society that anyone who engaged in the market who knows of or has real grounds to suspect that fraudulent business of any kind is being conducted should be under an obligation to report his suspicions to the Council of Lloyds or an appropriate committee of the Council who shall take such steps as they think fit. It should be the policy and duty of the Council by such committee to investigate and by its disciplinary committee to discipline any offender; and anyone who it is subsequently proved has such knowledge of such conduct and failed to report it should also be subject to discipline. It ought in appropriate cases to be the policy of the Council to furnish the police of the United Kingdom or any other country involved with such information as it can provide to assist in the bringing to public justice of those engaged in criminal activity involving the market.

It is not clear that the present draft of the Bill itself, schedule 2 of which describes the nature of the bye-laws which can be passed, or the draft bye-laws annexed to the Fisher Report adequately meet the problem. Paragraphs (14) - satisfaction of the committee as to character and suitability of individuals; (21) - power to acquire information; and (22) - power of disciplinary enquiry provide a potential framework. This could be adapted to meet the need. What appears to be missing is any clear statement of a basic requirement that it shall be the duty of anyone engaged in the market to inform the committee of such matters. I have written to the Chairman with a copy of this memorandum and hope to receive clarification. ű Nicholas Lyell ű 20th January 1981.

26 Jan 81

R J Kiln & Co Ltd: Letter from C K Murray

I understand you invited me to lunch today in order to discuss why divestment should not be made mandatory in the proposed LloydĂs Bill, but that the nature of this meeting has been changed in that it will be used to draft a petition against the Bill and it would therefore not be appropriate for me to be present. If any of those present at the meeting would like to talk to me either before the meeting or after the meeting about divestment, or indeed any other matter on which you think I might have experience or knowledge, then I would certainly make myself available.

As you know this Company is a completely independent underwriting Agency, and I am personally responsible for the underwriting of one of the major Non-Marine Syndicates. I believe most strongly that it is in the interest of my Names and the future of the business that the Bill should go through as drafted. I believe also that this is the wish of the great majority of my Names. If a group of MPs wishes to change any part of the Bill (and this would apply to Clause 11 or anything else) then surely they must come up with a practical alternative to replace anything they wish to delete. In other words, if you wish to delete Clause 11 then I believe the onus is on you to recommend an alternative system under which the societyĂs Council and the society itself would have proper protection.

I should be grateful if you would give a copy of this letter to each individual attending your meeting.

Jan 81

U.S. Federal Government publications: "Compensation for Asbestos-Associated Diseases: A Survey of Asbestos Insulation Workers in the U.S. and Canada" by P Barth; unpublished study for the U.S. Department of Labor.

Table Fifteen: Claims Growth of Asbestos Insulators

 

Claims filed, percentage of asbestos-related deaths:

 

Year of Death

WorkersĂ Compensation

Third Party Lawsuits

1962-1968

24%

3%

1969-1970

35%

7%

1971-1972

40%

9%

1973-1974

37%

22%

1975-1976

41%

32%

P Barth found that only 16% of a sample of insulator fatalities resulted in asbestos liability suits over the period 1962-1976 (pp. 63 and 91). However, that figure conceals growth in the frequency of filings in recent years. Although only 3% filed in 1962-1968, 32% filed in 1975-1976, as is shown in Table 15. Moreover, since more suits filed have had an outcome favourable to the plaintiff, the frequency of filings can be expected to continue to grow.

The expectation is that eventually from 75 to 100% of eligible claims will be filed on cases involving manufacturing employees and other insulators. In addition, survivors of mesothelioma victims in industries are considered equally likely to bring suits. The experience of the insulators suggests that the probability of a suit increases by three or four percentage points per year. Four percentage points has been used here as the most likely claims growth rate in the liability projections. Lower and higher estimates, equal to two and six percent, have also been constructed for sensitivity analysis. For all other asbestos related mortality, the projections assume survivors are only half as likely to bring cases, since those individuals have not been subject to intensive publicity and investigation.

While the number of asbestos-caused lung cancers can be estimated statistically, in an individual case it can be nearly impossible to determine whether the disease would not have occurred in the absence of asbestos exposure. Therefore, many cases will be brought by the victims of non-asbestos-caused cancer. To allow for this, non-asbestos-related lung cancer deaths in the heavily exposed population are added to the asbestos-related deaths in the projections of liability. These factors are summarised in Table Sixteen, to provide a frequency rate of claims for 1975 and thereafter.

Table Sixteen: Probability of a case Emerging from an Asbestos-Related Death

   

Assumed Growth

 
 

Rates in

Proportion

 

Base Year

(1975) Assumed

Probability

of

Group

Probability

Per Year *

Deaths

Insulators and Manufacturing

     

Employees

.32

.04

17%

Mesothelioma deaths

     

(excluding Insulators and manufacturing

     

employees)

.32

04

23%

All other asbestos

     

mortality

.16

.04

60%

Weighted Average

.22

   

1975 data from P Barth shown in Table Fifteen, used for insulators and mesothelioma. All other mortality assumed half as likely to lead to lawsuit as insulator deaths. Another factor determining the projected magnitude of compensation is the payment resulting from a successful case or settlement. Two approaches can be taken in estimating compensation per case. One is to examine actual court awards and settlements, and the other is to estimate the economic costs on the assumption that victims will be awarded those economic losses. The Insurance Services office conducted a survey of Products Liability Closed Claims in the United States, which indicates that for the period July 1976 to 15 March 1977, the average payment in an asbestos case (for settlements and jury awards) was approximately U.S.$170,000.

Average payments by type of injury:

All deaths

$132,870

All cancer (mortality and morbidity)

$166,800

All asbestos claims

$169,960

In 1980 dollars, this estimate is $233,000 which is between the amounts suggested by the other sources.

30 Jan 81

Keene Corp. -v- I.N.A., (Case No. 667 F. 2d 1034 D.C. Cir. 1981). In a memorandum Opinion filed on 30 January 1981, the District Court concluded that application of pertinent state law to this contract required adoption of the exposure theory of insurer indemnification.

Keene Corp. -v- I.N.A, 513 F. Supp. 47, District of Columbia Circuit Court, 30 January 1981. Revised, 667 F.2d 1034, District of Columbia Circuit Court, 1 October 1981. Cert. denied, 455 U.S. 1007, 8 March 1982. Rehearing denied, 456 U.S. 951, 26 April 1982. District Court applied exposure theory to trigger coverage. District of Columbia Circuit Court of Appeals applied the triple/continuous trigger of coverage and found a duty to defend and coverage for the over 6000 asbestos bodily injury suits against the insured. Court held that "INAĂs duty to defend Keene in underlying asbestos cases ceases upon the exhaustion of indemnity limits under the pre-1966 policies in question". Court found unambiguous policy language specifically limiting KeeneĂs duty to defend any suit "with respect to such insurance as is provided by the policy".

0 Feb 81

The largest ever oil rig insurance loss was confirmed at the beginning of last month when the Norwegian Oil Insurance Pool decided to pay out more than ˙25m to the owners of the capsized accommodation rig Alexander L. Kielland. Some 62.4% of the total loss value is covered by reinsurance in the London market.

0 Feb 81

The Government has published the Insurance Companies Bill, designed to tighten up the regulations governing the industry and bring the UKĂs supervision arrangements into line with the rest of the EEC.

The legislation, which was given a formal first reading by MPs establishes the classification of insurance business in EEC terms and arrangements for authorising and supervising insurance undertakings. It also redesigns the conditions under which insurance firms have to operate.

1 Feb 81

The American Insurance Association stated that as of 1 February 1981, 25,000 individual plaintiffs have sued for asbestosis (with 500 additional suits each month); losses and adjustment expenses from these suits alone in 1980 are costing $1-35bn per year, compared with 6-35bn paid in liability premiums (excluding medical malpractice premiums), according to BestĂs Insurance Management Reports of 9 March 1981.

10 Feb 81

Letter from the Chairman of the Asbestos Working Party, EE Nelson, entitled "Asbestos", addressed to the Active Underwriter:

In August last you were advised that it was proposed that an inter-market Working Party should be formed to co-ordinate the handling of the steadily increasing involvement of the London Market in Asbestosis claims. Since its formation the Working Party has met frequently to consider the problems that arise and to determine, with the help of Counsel, how the Market should be recommended to deal with them.

The insurance industry, including the London Market, continue to be divided as to whether asbestosis claims are attributable to policies on an "exposure" or a "manifestation" basis. The exposure theory broadly argues that for determining when a loss arises under a policy injury occurs at each inhalation of asbestos fibres. The manifestation theory broadly argues that the injury occurs when the condition is diagnosed.

Application has been made for a ruling on this matter in more than a dozen Declaratory Relief Actions presently before the U.S. courts, some of which directly involve the London Market. The expenses being incurred in these actions is substantial.

A significant decision was given recently in the appeal in one of such actions Insurance Company of North America -v- Forty-Eight Insulations, Inc. (U.S. Court of Appeals for the Sixth Circuit) which, in affirming the trial court judgement adopted the exposure theory by a majority of two to one. The dissenting opinion argued that the date of loss was when the condition was first discoverable. This could be considered as a "half-way house" between the exposure and manifestation arguments, a further complication of the issue.

LloydĂs has been actively involved in another Declaratory Relief Action, the Eagle Picher case, which was tried in Boston, Mass, towards the end of 1980. Judgement is expected at any time know, and whatever the decision the case will be appealed.

Declaratory Relief Action by Johns-Manville Corporation, who probably have the largest involvement in the asbestosis problem of any insured is now expected to be heard next year.

In all the circumstances it is reasonable to assume that the manifestation against exposure issue will not be resolved in the near future.

With the approach of the year-end attention has focused upon claims reserves particularly bearing in mind the following:-

  1. The rising trend of settlement figures and the effect upon them of inflation in the U.S.
  2. As underlying aggregates are exhausted some insurers may look to excess carriers to absorb defence costs: and
  3. During the past year the number of cases in suit has increased from about 5,500 to in excess of 8,000 and at this stage it is not possible to project how many more claims will be filed.

Your U.S. legal representatives are now engaged in calculating potential loss figures on known claims in light of latest information available. It is anticipated that reports of their calculations will be available in London no later than Monday 23 February so that you may take account of that in calculating reserves. It cannot be emphasised too strongly that you should make yourself aware of the contents of these reports

The Working Party has been advised that circulation of the lawyersĂ reports in the manner customary in the Market may jeopardise the legal privilege from production by which they are otherwise protected. The Working Party has accordingly arranged that the reports will be available for inspection by appointment at the offices of solicitors Elborne Mitchell at 40 Lime Street - 7th Floor - (telephone number 621-0160/61) in circumstances in which the legal privilege is preserved.

13 Feb 81

Mr Christopher Moran came to see the Chairman, Peter Green, and a Deputy Chairman, A W Higgins. He informed them that he had evidence that Oakley Vaughan & Co Ltd, LloydĂs Brokers, had been netting premiums and claims on business underwritten 100% by Syndicate 862, an Aviation Syndicate managed by Oakley Vaughan (Underwriting) Ltd. Mr Moran handed over copies of slips (CO 176 and CO 177), a schedule, certain working papers and L.P.S.O. premium advice forms. He said that these documents came from Mr C D Mountain, an ex Oakley Vaughan employee currently employed by Mr Moran.

81

Hammond -v- North American Asbestos Co (Case No. 80-L-52) Circuit Court of McLean County, Illinois. Punitive damages have been awarded in few cases to date. In this case, the jury awarded $375,000 in punitive damages in addition to damages in the amount of $125,000.

16 Feb 81

LloydĂs: Circular letter from Peter Green, Chairman of :LloydĂs to membership

In my address to the General Meeting of Members last November, a copy of which was sent to you, I was able to report on the successful outcome of the Extraordinary General Meeting earlier in the month and the completion of the preparation of the draft Bill. I am now writing to you with a request for your assistance (see Page 4).

The Bill has been presented to Parliament and it is therefore an appropriate moment to let you know the detailed facts of our Parliamentary progress to date, and our hopes for the future. It is particularly important that I should do so at this juncture since some Press reports may have misled you. A Member could be forgiven for concluding from such reports that the Bill, for which you voted in November by such an overwhelming majority, has by February been drastically revised or seriously delayed. Neither is in accordance with the facts.

It was always unlikely that Parliament would pass such an important Private Bill "on the nod" without a full debate. Common sense and our Parliamentary advisers both suggested that a second reading debate would be demanded and that is precisely what has happened. We expect that this debate will take place in the House of Commons in March, after which the Bill passes to its Committee stage for detailed examination and for consideration of the petition against the Bill which has been lodged by two Members of LloydĂs.

In a Bill of this complexity and importance there are bound to be some contentious issues; MPĂs understandably wish to discuss such issues in depth. Certain material objections have been raised on a few points and we would be guilty of inflexibility if we did not seek where possible to revise the text of the Bill to meet such objections. The Committee is, however, mindful of its mandate from Members and does not intend to compromise on the fundamental principles which you have approved.

Sir Graham Page, who is promoting the Bill for us, has been the Member of parliament for Crosby since 1953 and has a distinguished record of service in the House of Commons; he has been particularly successful in the promotion of various Private Bills.

We have held several discussions with Members of Parliament who have expressed concern on four main points.

(i) The Council

The basic purpose of the Bill is to provide for LloydĂs an effective system of self-regulation by means of an efficient and representative governing body. The Bill proposes as such a body a Council of 16 Working Members of the Society, 6 External Members and 3 Nominated Members. Representation of External Members is in effect an innovation but concern has been expressed as to whether the number, six, is adequate. This is the number recommended by the Fisher Working Party and the Committee believes it is about right, but if Parliament is persuaded to make a small adjustment of these figures, so be it. It is essential, however, that there should be a Committee consisting of the 16 Working Names to carry out such day-to-day work as the Council may delegate to them. The special resolution concept requiring separate majorities of Working Members of the Council on the one hand, and the External and Nominated Members of Council on the other, ensures that any matter of moment will receive proper consideration. It is well to remember in this connection that the interests of External and Working Names are indivisible; that without a properly regulated Society and Market, unchallengeable financial security for the policyholders, and the expectation of profit for its Members, LloydĂs cannot and will not prosper.

(ii) Immunity

If the Council is to be given - and to use - the powers effectively to operate a system of self-regulation for LloydĂs then there is a good argument for affording it, its members and the Society a measure of protection against legal liability. Clause 11 deals with the difficult problem of how far it is proper for the Society (which is all of us), and the Council or Corporation Staff, when acting in pursuance of LloydĂs Acts, to seek a limited immunity from suit by individual members of the LloydĂs community. Your Committee remains convinced that some form of immunity will be needed to secure effective self-regulation. I stress that only the community of LloydĂs is involved. The proposed immunity affects neither the public nor LloydĂs policyholders. Moreover, the suggested clause would not bar a Member or group of Members from seeking an injunction from the Courts to prevent the Council from taking an unreasonable course of action.

The Fisher Report in Chapter 6 recognised that the Council, Corporation staff and the Society as a whole when honestly carrying out their responsibilities towards Names should be protected from suit for damages, by, for example, a Member, smarting under an underwriting loss, alleging that the Council is responsible. The effect of this could be to transfer the losses of the individual to the membership as a whole. This would threaten one of the most fundamental principles of LloydĂs in that we accept individual liability each for our own part and not liability on a mutual basis. This is the premise upon which we individually accept unlimited liability.

Since this is a complicated matter we have suggested that the provision relating to immunity should be transferred from the main body of the Bill and be inserted in the Second Schedule under which Bye-laws can be made by the Council. The redrafting will mean that detailed discussion of the question will be deferred until the new LloydĂs Council with its External Members has been established. A procedure has been added so that approval by the Privy Council and Parliament will be necessary before any Bye-law on this subject can take effect.

(iii) Independence

The Bill presented to Parliament uses almost exactly the same words on this point as the Bill proposed by the Fisher Working Party, in that Clause 12 of Schedule 2 in the LloydĂs Bill repeats Clause 10 in Schedule 3 of the Fisher draft. If self-regulation is to mean anything surely it is eminently a matter for the Council to decide how the necessary independence and separation of management of Managing Agencies and Broking firms should be achieved. Divestment of ownership may, at the end of the day, be the method of achieving this. The present Committee has assured Sir Graham Page that, forming as it will the nucleus of the new Council, it is determined that the problem of the proper degree of separation between broking and underwriting will be one of the first matters to be dealt with by the Council. If this proves to be impossible without divestment of ownership the one of the other, then the Bill enables the Council to take that course.

(iv) Fraud

Certain MPĂs are concerned to ensure that LloydĂs will have the necessary power to deal effectively with "fraudulent" behaviour by those who work in the Market - an aim clearly shared by all. We have found a process that will greatly strengthen the hand of the future Council in dealing with this problem. The drafting of the appropriate paragraph is proceeding, dealing with the complicated legal points involved.

I am certain that common ground can be reached on all these points and that the result will be an improved Bill.

I now turn to the part which Members of LloydĂs resident in the United Kingdom can play. As I have said, a second reading debate will shortly take place in the House of Commons. It is important that a sufficient number of MPĂs are present to secure the second reading and ensure that the Bill moves into Committee where the various points at issue can be discussed in detail.

I would urge you, therefore, to contact your own M.P, and to request him to attend the debate and help to secure the passage of this important Bill.

LloydĂs has contributed to the well-being of this country over many years, not only through our outstanding contribution to the Balance of Payments, but also through the taxation paid to the State on MembersĂ profits and by the employment provided for thousands of citizens. Our record deserves the concern of MPĂs to assist the passage of a Bill which means so much to LloydĂs and which has the overwhelming support of the Members of our Society. If any Member of Parliament requires information which you are unable to provide, I shall be delighted to hear from him and will do my best to help.

I intend to keep you informed of our progress towards the new Council by means of letters such as this or more general news letters in LloydĂs Log.

17 Feb 81

Financial Times: LloydĂs members urged to lobby MPs on new Bill

17 Feb 81

LloydĂs List: LloydĂs Bill - chairman urges Šlobby MPsĂ

AN APPEAL has gone out to all British members of LloydĂs to lobby their MPs to attend the second reading debate on the LloydĂs reform Bill and help get it through Parliament.

The call comes in a four-page letter on the progress of the Bill from the chairman of LloydĂs Mr. Peter Green. It has been sent to each of the 19,000 plus members of whom about three-quarters come from the UK.

Mr. Green says the debate is expected to take place next month. To ensure that enough MPs are present to see that the Bill gets a second reading and moves into committee stage where it can be discussed in detail., he stresses the importance of lobbying the MPs.

Mr. Green has previously expressed concern over LloydĂs members approaching MPs directly - as he feels the community should speak with one voice - but it is now admitted within LloydĂs that MPs could have been more widely consulted.

Mr. GreenĂs letter does not go into detail about subsequent negotiations. There were bound to be contentious issues, he writes in a Bill of the complexity and importance of this one.

"Certain material objections have been raised on a few points, and we would be guilty of inflexibility if we did not seek where possible to revise the text of the bill to meet such objections.

But, he emphasised, the Committee of LloydĂs will not compromise on the fundamental principles in the Bill, as it was approved by the members at a special meeting in November. The Bill has neither been drastically revised nor seriously delayed.

Most of the alterations have already been disclosed or widely predicted but Mr. Green reveals that a paragraph dealing with fraudulent behaviour is now being drafted.

17 Feb 81

Daily Telegraph: LloydĂs compromises on reform Bill issues

LLOYDĂS of London last night presented to MPs the changes it proposes to make in the Bill which would reform its self-regulation, to meet the objections delaying its passage A compromise has been suggested on all the points at issue, but MPs are considering their response.

Sir Graham Page, Cons MP for Crosby, who is steering the Bill through Parliament for LloydĂs, gave the MPs four assurances. The much disliked legal immunity of LloydĂs Council is to be removed into a schedule to he activated by order in Council and affirmative order by Parliament.

Separation of the broking and underwriting activities will be forced through. though LloydĂs makes it clear this may not involve brokers selling their underwriting agencies. But Sir Graham explained to the MPs that it was not necessary to include the matter in the Bill since LloydĂs already had power to enforce its will.

Similarly, agreement has been reached between lawyer MPs and LloydĂs legal department not to include in the Bill a requirement for all members of LloydĂs to reveal to the council suspicions of fraud.

Instead there is to he a requirement for the council to keep information confidential, since that was reckoned the easiest way to encourage members to volunteer suspicions.

LloydĂs said it was open to persuasion on the number of eternal names to sit on the new council. Sir Graham gave assurances that all these matters would he discussed and introduced when the Bill is considered by a committee of the house.

In a letter to all LloydĂs members Peter Green, chairman, is unrepentant on the desire for total legal immunity for staff operating the insurance marketĂs self-regulation.

He argues that all members losing money might claim the council was responsible. leading to the council paying for membersĂ losses. But Mr. Green concedes its removal from the main body of the Bill.

17 Feb 81

Guardian: LloydĂs chief lobbies members

LloydĂs is prepared to accept limited changes in the Parliamentary Bill designed to modernise its procedures but the commitment cannot be open ended. That was the message from the chairman of LloydĂs, Mr. Peter Green in a letter sent out to the 16,000 members of the vast insurance market yesterday. Mr. Green said he thought it only fair that they should know the state of play on the bill as it now stood.

He sets out the LloydĂs position under four headings.- Immunity from Legal Liability: Mr. Green claims that LloydĂs still needs protection against legal action by any members of LloydĂs - but recommends that the immunity should not be part of the main bill. Instead, he says, it should be transferred to one of the schedules - so that it would be up to the new Council to bring it in. The Council could not do so, willy nilly. LloydĂs recognises that there are doubts about it and the immunity can only come in if both Parliament and the Privy Council accept the idea immediately before implementation.

Council Membership: The chairman claims that LloydĂs can accept more than the six "external names" to sit on the new Council though he is careful to limit himself to accepting "a small adjustment" only. The external names are the people who put up capital for LloydĂs but do not take a day to day part in its operations. Some of them have called for higher membership on the committee - but Mr Green is unlikely to accept more than eight external names. The rest of the Council would consist of 16 people in daily touch with LloydĂs - working names in the jargon - and three members chosen by the Governor of the Bank of England.

Divestment: Mr Green shows no signs of bending on the present LloydĂs position. The Fisher Report recommended that the giant brokers which own, or partly own, the management agencies - which in turn employ the u n d t r w r it e r s assessing each risk - should have to sell off their shares in these groups within five years. Brokers, who have to collect the best possible insurance terms for their clients, should not be in a position where they could bring pressure in the underwriters, said the report.

Fraud: Here the Committee looks as though it is changing its line. Originally it was completely opposed to the idea that brokers suspecting fraud should report it to the LloydĂs authorities. The Law of Agency, which made the broker responsible only to his client. made it impossible it said.

17 Feb 81

The tour of Š81

For the first time since he became Chairman of LloydĂs, Mr. Peter Green has undertaken a major overseas tour. His three-week itinerary covered 14,000 miles and included visits to New York, Washington DC, Chicago, San Francisco, Los Angeles, New Orleans, and Houston. He met most of the leading figures in American insurance and 200 or more senior executives from a broad cross-section of US industry and commerce, and delivered three major speeches including one to 800 members of the ExecutivesĂ Club of Chicago.

After his triumph last November at the Royal Albert Hall it seemed likely that the ChairmanĂs name might one day go up in lights. That the venue would be the Houston Astrodome and the occasion the 1981 World Rodeo Championships was not, however, seen as a serious possibility. But ChairmenĂsĂ tours are seldom short of surprises and Peter GreenĂs recent visit to the United States was certainly no exception.

Fortunately for the party which, in addition to Mr. and Mrs Green, comprised Murray Lawrence, a member of the Committee of LloydĂs and Mrs Lawrence, Joe Hodges, Secretary General to the Corporation and Mrs Hodges, Penelope Wyatt, the ChairmanĂs Personal Assistant and David Larner, LloydĂs Chief Press Officer, they were all pleasant ones, a fact remarkable in itself bearing in mind an itinerary which in three weeks covered seven cities and over 14,000 miles. It also says a great deal for the planning which had been done on both sides of the Atlantic that at no time was a plane missed, a bag lost or an appointment unkept. Even the weather which in some states in the middle of February can be decidedly inclement was exceptionally warm and remained so throughout reflecting the welcome that was extended at every port of call.

New York - February 17

The tour commenced with a meeting on arrival in New York with Ed Palmer and Tom Hitchcock of Citibank, custodian of LloydĂs American Trust Fund. Only two months before, this had passed the $3bn mark giving a clear indication of the enormous growth which has taken place in LloydĂs US dollar business since the fund was set up in 1939 with an initial capital of $40m.

February 18

A visit to Bob Tisdall of Toplis & Harding, LloydĂs Agents, New York, was to evoke headlines of nearly 30 years ago. There to meet the Chairman was the master of the Flying Enterprise Captain Kurt Carlsen who, in 1952, had been awarded LloydĂs Silver Medal for Meritorious Services "for his tenacity in remaining on board for twelve days in an attempt to save. his ship". Captain Carlsen remembered with pleasure receiving his medal from the then Chairman of LloydĂs, Sir Matthew Drysdale, and Mr. Green observed that no-one who was present in the Room on that occasion would ever forget it.

The ChairmanĂs next engagement, and the first of a number involving the so-called alphabet brokers was to address the board of Johnson & Higgins with their president, Bob Hatcher, Jr. That evening Mr. Green spoke at a reception at the British American Chamber of Commerce hosted by the president, Theodore Mander and was later guest of honour at a dinner given for the LloydĂs party by the British Consul-General and Mrs Hugh Overton.

February 19

Having visited the offices of Citibank Mr. Green had a meeting with Ken Soubry, chairman of Alexander & Alexander. Then, following a press interview at his hotel he went to a reception and dinner given in his honour by the president of Marsh & McLennan Inc. Robert Clements and by the chairman of the parent company Jack Regan.

February 20

After a breakfast press interview, Mr. Green accepted an invitation to tour the New York Insurance Exchange before giving lunch to representatives of the major reinsurance brokers. After a further press interview the Chairman attended a dinner given by Al Tahmoush, chairman and president of Frank B Hall, the firm which in 1978 led the field in gaining direct access to the LloydĂs market by buying an interest in Leslie 8 Godwin.

February 23

Returning from a brief respite in Connecticut, the Chairman began the second week of his tour by visiting the offices of LloydĂs General Counsel, LeBoeuf. Lamb, Leiby and MacRae. This preceded a well attended press briefing at which, in addition to questions about insurance and on the progress of the LloydĂs Bill, Mr. Green was asked for LloydĂs reaction to the Thatcher government, more particularly since President Reagan had announced his intention of pursuing a similar economic policy.

At midday he was the guest of Charles OĂMalley, chairman of the executive committee of Fred S James and in the evening he and Mrs Green together with Mr. and Mrs Lawrence welcomed more than 350 guests at a LloydĂs reception at the Wall Street Club.

Repairing to the Union Club the LloydĂs party again became the guests, this time at a function hosted by Robert Corroon, chairman of another of AmericaĂs leading broking houses, Corroon & Black.

February 24

Having spent a week in New York the travelling now began in earnest. Catching the 8am shuttle from La Guardia to Washington DC, the Chairman accompanied by Mr. Lawrence and Mr. Hodges, paid a courtesy call on Roland de Kergorlay, head of delegation of the Commission of the European Communities thence to a luncheon given for the Chairman of LloydĂs by John Fretwell, minister at the British Embassy, and attended by many distinguished guests.

Before returning to New York for a dinner arranged for the LloydĂs party at the "Windows on the WorldĂĂ by Taylor Briggs and Donald Greene together with other partners of LeBoeufĂs, the Chairman held a press briefing at which he was again questioned about BritainĂs economic outlook ahead of the Prime MinisterĂs own visit to the American capital which was scheduled for the following day.

Chicago - February 25

From the Big Apple to the Windy City. On arrival at OĂHare International Airport the LloydĂs party was taken by helicopter to Meigs Field in the downtown area. The flight, made on a perfect day. gave magnificent views of Lake Michigan and Chicago high-rise buildings as well as McCormick Place which, after a fire in 1967 LloydĂs underwriters had helped to rebuild.

On landing, a full and varied programme at once got under way starting with a LloydĂs reception which was attended by over 250 guests representing a broad spectrum of the Chicago business community. Included were members of the Association of LloydĂs Brokers whose executive committee hosted a dinner for the Chairman and his party at the Carlton Club.

February 26

The day began with a visit to the Chicago Board of Trade, perhaps the worldĂs most frenetic exchange, where Mr. Green was welcomed by the president, Robert Wilmouth and the chairman, Leslie Rosenthal. The morning ended with calls on William Coakley and Walter Remdt of Toplis & Harding, LloydĂs Agents, Chicago.

After lunch with a group of insurance leaders, Mr. Green visited the Illinois Insurance Exchange where he was greeted by the chairman Donald Montgomery. That evening the LloydĂs party divided its forces with the Chairman and Mrs Green and Mr. and Mrs Lawrence attending a dinner given by the British Consul-General and Mrs George Chalmers, while Mr. and Mrs Hodges were hosts to Mr. and Mrs Larry Kochan and the staff of the Attorney-in-FactĂs office.

February 27

Came the dawn and Mr. Green arrived at the studio of Channel 26 to be interviewed by Ben Larson for the television programme Business Newsmakers following which he paid a courtesy call on the Director of Insurance, Philip OĂConnor. The ChairmanĂs next engagement was to attend an informal gathering of business students at the Bismarck Hotel prior to addressing an audience of some 800 at a lunch-time meeting of the ExecutivesĂ Club. his subject being "A view from London of the international insurance scene". A press briefing. a visit to the offices of Lord, Bissell 8 Brook. LloydĂs Attorney-in-Fact in Illinois and a reception given by the partners accounted for the afternoon.

San Francisco - February 28

With the tour at the halfway mark, the LloydĂs party flew to San Francisco where the following evening, they were guests at a dinner given by Hartley Cravens, chairman of the Surplus Line Association of California and of the Executive Committee of the Northern Division.

March 2

Another busy schedule began with a series of calls first on Alan Rees, LloydĂs agent and Salvage Association representative, then on the offices of the Surplus Line Association of California where the Chairman was greeted by Ben Herrick and Mr. A. Freeman. A lunch-time meeting led by Hartley Cravens afforded Mr. Green, Mr. Lawrence and Mr. Hodges an opportunity to meet local industrial leaders before resuming their programme which, in the afternoon, included a courtesy call on Mr. Armacost, president-designate of the Bank of America and a visit to the offices of Cravens & Co. The day ended with a dinner given in Mr. GreenĂs honour by the chairman and president of the FiremanĂs Fund, Myron F. Du Bain.

March 3

At 2am San Francisco experienced a tremor which registered 4 on the Richter scale, an event which went unnoticed by the London contingent though not by the media which gave it considerable coverage. Earthquake insurance was, therefore, high on the agenda at a press Interview given by the Chairman before he left for a tour of the Bay Area Rapid Transit System (BART) organised by Bob Nevins. During a luncheon given for the LloydĂs party by the president. John Glenn and the board of directors, reference was made to the links which have long-existed between LloydĂs and his undertaking and at a subsequent press briefing Mr. Green cited BART as an example of the type of risk which LloydĂs is proud to be associated. Having hosted a reception for 250 guests in the ballroom of the Stanford Court Hotel, the Chairman and his party flew to Los Angeles where they arrived shortly before midnight.

Los Angeles - March 4

Following a press interview at 9.30am. Mr. Green attended a luncheon given by Lew Wasserman, senior executive of MCA at Universal City Studios. He later toured the sets and watched a film being shot before giving a reception for over 300 guests at the Wiltshire Country Club. That evening the LloydĂs party were the guests at dinner of the executive & stamping committees of the California Surplus Line Association. southern division.

March 5

What was, perhaps, the most concentrated day of the tour commenced with a visit to LloydĂs agent, Don Maxson of Toplis and Harding and continued with a press interview. This was followed by a reception and luncheon hosted by the Los Angeles Chamber of Commerce at which the Chairman spoke pointing out, among other things, the need for insurers world-wide to reduce their reliance on investment income. After lunch the Chairman visited the offices of the Los Angeles Times for a meeting with the editor, Bob Erburu and his financial staff followed by a drive across town to the Los Angeles Herald Examiner for an interview and meeting with the publisher, Francis Dale. Next there was a reception at the California Club given by Mr. Dale and Mr. Erburu for the Retail Brokers and their clients and finally a farewell dinner given by the Chairman for the California Surplus Line Association at which he presented the association with an Armada dish engraved with LloydĂs coat-of-arms.

New Orleans - March 6

Heading south on the last leg of the tour, the Chairman and his party left for New Orleans where, on arrival, their motorcade was escorted into the city by police outriders complete with sirens and flashing lights. Fear of arrest soon turned to gratitude as without their assistance it is doubtful if the hosts would have been on time for a LloydĂs receptioned from Turin by the Italian State Prosecutor.

So Savonita has resurfaced only to coincide with the troubled passage through Parliament of the private Bill aimed at improving LloydĂs self regulation.

Widespread criticism over LloydĂs handling of the Savonita row between insurance brokers Willis, Faber and Pearson, Webb, Springbett, dealt a shattering blow to LloydĂs reputation.

Then came the Sasse affair, in which the 110 members, facing losses of ˙21.5 million, had to be rescued by LloydĂs, alone with a spate of disastrous losses on computer leasing insurance.

It was against this background that LloydĂs commissioned the " Fisher " report which found Lime Street wanting in many aspects of self-regulations and formed the basis of the Bill.

But Savonita set the seeds. The row centred around the refusal of Malcolm Pearson, chairman of Pearson, Webb, Springbett to pursue a $711,000 claim against LloydĂs over 301 fire damaged Fiat cars bound for the United States aboard the cargo ship Savonita.

Pearson, WebbĂs allegations that the claim might be fraudulent was based on loss adjuster Bob BishopĂs report that the cars had been sold to a Fiat dealer in Naples at 15 per cent of their new value and subsequently resold at 80 per cent of that value.

The primary insurer was SIAT (then, but no longer a Fiat subsidiary) which transferred its account from Pearson, Webb to the much larger firm of Willis, Faber, which collected 96 per cent of the claim in 1978.

The decision by Jonathan Aitken MP to air events in the House of Commons led to wide-spread publicity which forced LloydĂs to produce its own report. This inconclusive document referred to "unsatisfactory aspects " of the claim.

But, despite the crucial questions raised by the Savonita affair over the responsibilities of a member of LloydĂs who suspects the possibility of a claim being fraudulent there was, amazingly, no reference to fraud in the proposed Bill which signals the most important legislative change at LloydĂs for more than a century.

This is one of several major criticisms levelled against the Bill by a number of Conservative MPs with pressure also being exerted by the newly formed Association of External Members of LloydĂs, led by Lady Middleton, a magistrate and one-time member of the ill-fated Sasse syndicate.

The emergence of Lady MiddletonĂs 200-strong association (two members of which have petitioned against the Bill) reflects the new-found muscle of the 16,000 individual members of LloydĂs (80 per cent of total membership) who, although not actually employed in the market, accept Lime StreetĂs traditional principle of unlimited liability.

Controversy has raged over the structure of LloydĂs new ruling council (dominated by " working " members); the councilĂs proposed legal immunity; the conflicts of interest brought about by brokers owning underwriting agencies and the need for positive guidelines concerning fraud.

Sir Graham Page, who .is steering the Bill through the Common, claims to be close to compromise agreements on these counts with the MPs but, last week, Green was anxiously urging members to seek their own MPsĂ support for the Bill, which could yet be " talked out " of Parliament.

The ghost of Savonita haunts the subject of whether doubtful or suspect claims should be notified to LloydĂs new council and, if so, whether confidentiality will be observed regarding information provided by a broker or underwriter which might be passed to the police.

Any developments on the Savonita front in Turin will clearly intrigue MPs who are now bracing themselves for next monthĂs debate.

The Italian authorities, as we reported last week, have seized the passport ofĂ Sig. Walter Fenoglio, a former senior executive of Fiat, who has been informed that be may face questioning.

Various parties who have been briefed by Green on LloydĂs agreement to help the Italian authorities are understood to include Pearson, Bishop, Willis Faber and Roy Hill, the lead underwriter on the Savonita slip.

23 Feb 81

The Times: LloydĂs of London

Sir Graham Page, Conservative MP for Crosby, Merseyside, and noted promoter of private parliamentary Bills succeeded in getting a Lloyds Bill through "on the nod" last week.

That news, however, will not lead to scenes of wild jubilation in the committee room at that elite underwriting club in LondonĂs Lime Street known as LloydĂs. For the Bill concerned that other unappostrophied Lloyds - the clearing bank - and was little more than the rubber-stamping of a minor take-over.

The other LloydĂs Bill, which Sir Graham is handling is proving an infinitely more daunting task to steer through the House. Sir Graham, whose past successes as a promoter include the 1957 Cheques Act and the 1960 Pawnbrokers Act has found himself having to negotiate through a minefield of Tory criticism about different aspects of the Bill.

Ironically most of the critics are in favour of the Bill in essence. Designed to improve self-regulation in the market, it represents a bold action by LloydĂs to tighten its rules in the wake of a series of scandals and disputes.

But the rebels are hotly opposed to several aspects, not least clause 11, which would give the new ruling council envisaged under the Bill an indemnity against legal action.

Debate over the LloydĂs Bill is many-sided but at its centre is the question of just who holds the control of one of the worldĂs most famous institutions - an insurance market handling insurance premiums of almost ˙2,000m.

Almost 20,000 individuals now put up their belongings "down to the last gold cufflink " as security against the risks LloydĂs underwriters take. But 16,000 of this total have virtually no involvement in the market.

This " dormant " body of underwriting " names", who have one possession in common - wealth, have been sharply awakened in recent years by a series of disputes, scandals and worse still losses, culminating in the notorious Sasse syndicate affair

These members snag have been soothed by the news that Lloyd s was to put its house in order through an independent inquiry headed by Sir Henry Fisher and following from that a draft parliamentary Bill. This would keep the professionals who used the market in check.

But, who an increasingly vociferous minority of names has been asking, will keep the rule makers in check? The problem is that LloydĂs has become increasingly dominated by big insurance brokers. They produce the business and their employees hold sway in the committee room. To outsiders there seems an obvious conflict of interest between the duties of these employees to the underwriting names and the companies they work for.

So far the debate has brought an interesting cross-section of establishment figures into the public glare. There is for example Lady Janet Middleton, wife of the 12th Baron Middleton of North Yorkshire, and a generalĂs daughter and magistrate. Stung into action possibly by an expensive experience as one of the names on the hapless Sasse syndicate she now heads an Association of External Names which is campaigning vigorously against various Aspects of the Bill.

Secretary of this new association, David Watkins-Cronin, an Irish barrister and architect, became a LloydĂs name only last year but has become sufficiently alarmed about what he has learned since then to campaign for a redrafting of - or, at least, to see substantial changes in¨ - what he regards as a " thoroughly bad Bill "

In the House of Common the debate has drawn a fairly spectacular cross-section of Tory thinking to one common purpose. From the right in the shape of Archie Hamilton (Epsom & Ewell) to the near left in the form of Richard Needham (Chippenham) eschewer of his inherited title Earl of Kilmorey, well over 20 MPs have become loosely enjoined to thrash out the issues with sir Graham

Many like Needham, Alastair Goodland (Northwich), Peter Lloyd (Fareham), John Watson (Skipton) and Richard Body (Holland with Boston) have an obvious interest in that they are among the 55 Conservative MPs who provide security at LloydĂs.

Others like the quixotic Jonathan Aitken (Thanet East) would claim perhaps to have a more distant interest, viewing LloydĂs as an important British institution in danger of careering out of control

Aitken, of course, has already had one tilt at the windmills of LloydĂs when he brought to the attention of the House and the press the now famous " Savonita" affair,

Meanwhile, the debate among LloydĂs names is becoming increasingly fiery with signs of a split even within Lady MiddletonĂs committee between those who would like to see the Bill go through after important surgery and those who would like it to be withdrawn altogether and rewritten at a more leisurely pace.

And a great many other LloydĂs names cannot see what all the fuss is about anyway. One of them, Colin Baillieu, fired off a letter to the Times only last month to declare " Lady Middleton and her associates want protection but if that is what they want they should not be in LloydĂs in the first place".

The existing committee of LloydĂs is fairly confident that this represents the majority view.

23 Feb 81

Financial Times: New association at LloydĂs split over policy

A SERIOUS rift has opened up between members of the committee of a new association at LloydĂs of London which has been formed to represent the interests of the 16,000 members who do not work at LloydĂs.

The committee has called a meeting for March 11 of the 270 or so members of the new association - called the Association of External Members of LloydĂs - at which a new committee is likely to be elected.

The committee, chaired by Lady Janet Middleton, a former member of the ill-fated Sasse underwriting syndicate, has split into two camps. The three executive officers, including Lady Middleton, face opposition from a group of co-opted members.

The row is essentially over policy matters. T here has been some argument over whether the emerging association should associate itself with a petition lodged with Parliament by two underwriting members of LloydĂs for amending LloydĂs new Bill improving self regulation within its market.

Although Lady Middleton can muster the support of three of her committee, her camp is outnumbered by five to four.

The LloydĂs establishment is violently opposed to the new association, which seeks to represent the interests of the 80 per cent of the total 20.000 membership which does not work at LloydĂs.

LloydĂs feels that the new association could usurp the function of managing underwriting agents, who look after the affairs of all LloydĂs members in the market.

But the new association argues that it wants to represent the collective interests of the members, not just the individual interests, which are attended to, by the agents. Some underwriting agents have warned overseas members who may be seeking to join the new association that if they are unhappy with. the services they are getting and are considering joining the association they should change their underwriting agent.

Overseas members account for over 10 per cent of the membership of the external members association.

23 Feb 81

Financial Times: CMG names Names at LloydĂs of London

OFFERED BY CMG (City of London) is a real time inter-active package to run on an IBM System 34 computer that quill provide Names Agents and Managing Agents at Lloyds with instant up-to-date informal on Names and Syndicates.

At Lloyds, "Names " are individuals in a position to bear risk financially in insurance while "Names Agents" are those who look after the affairs of such individuals and place them on syndicates,

" Managing Agents " are responsible for appointing the active syndicate underwriter and managing the affairs of the syndicate.

Each of these agents needs up-to-date information about Names and Syndicates with which he is connected and this is the data that is held in store and provided by the new CMG system.

Called NAMIS (names agents and management information system), it is the result of some 18 months of studies and discussion with presentations to many of the 270 Agents at Lloyds.

NAMIS will assist the Agents to monitor Names and Syndicate business and dramatically reduce the task of correlating Names data.

In addition to containing personal financial data on each Name, the system will record details such as the NameĂs interest in each syndicate, information on his syndicateĂs underwriting figures and results for the past 11 years, and his historical limits. CMG is on 01-481-3881.

26 Feb 81

An Unlimited xs $2,500,000 run-off reinsurance placed for the General & European Insurance Company to incept at 1 April 1980 covering the years 1978 - 1980. Outhwaite 317/661 wrote 100%.

Feb 81

The Asbestos Working Party contacted Elborne Mitchell, Solicitors, requesting them to act on their behalf and to set up an asbestosis documentation database within their offices on the 7th Floor, 40 Lime Street as a central focal point for underwriters to inspect the U.S. AttorneysĂ commissioned market reports on the serious impact of asbestosis and the eventual asbestos -related property damage claims. Mr Robert E M Elborne, solicitor, was an external Council Member of LloydĂs throughout 1983 to 1987

4 Mar 81

The United States Court of Appeals for the First Circuit entertained oral arguments in Eagle-Picher Industries -v- Liberty Mutual. Attorney Malcolm Roscow of Standard, Weisberg, Heckerling & Roscow presented the position of the exposure Underwriters and believe that we were able to raise a question as to KeeneĂs applicability to Eagle-Picher. While Eagle-Picher had urged the manifestation construction, it now has urged adoption of the broader approach as enunciated in Keene -v- INA.

5 Mar 81

Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 6th Circuit Michigan, October 21, 1980. Opinion clarified, 657 F.2d 814, 5 March 1981. Cert. denied, 454 U.S. 1109, 7 December 1981. Rehearing denied, 455 U.S. 1009, 8 March 1982. Court of Appeals for the Sixth Circuit applied exposure theory and concluded insurers have duty to defend asbestos bodily injury claims brought against the manufacturers of asbestos. Court held that insurance liability would be prorated among all insurers on risk during exposure period.

6 Mar 81

Letter from Mr EE Nelson, Chairman of the Asbestosis Working Party to participants on the Johns Manville risk. (stressing the absolute necessity of reviewing certain papers at Elborne Mitchell). Reports and recommendations have been deposited at the offices of Elborne Mitchell. Will you please arrange for a representative who has overall authority to make a commitment to review the documents at the earliest opportunity.

6 Mar 81

Lord, Bissell & Brook: Report to the Interested Reinsurers C/- of Ellinger Heath Western.

Report No. 1

RE: Reinsurance Agreements Nos: 721/0002,003,0329 Casualty Excess of Loss Reinsurance

Reinsured: North Star Reinsurance Corporation

Assureds: Various Asbestos Producers and Manufacturers

Claims: Various Asbestos-Related products Liability Bodily Injury Claims

ReinsuredĂs Coverages: Various Products Liability Coverages between 1966 - 1979.

ReinsurersĂ Coverages:

I. Contract No: 721-0002

  1. Excess of Loss Treaty for five periods between July 1, 1966 and July 1, 1971 with limits of $750,000 Ultimate Net Loss each and every accident excess of $250,000 Ultimate Net Loss each and every accident;
  2. Excess of Loss Treaty for the period July 1, 1971 to July 1972 with limits of $700,000 Ultimate Net Loss each and every accident excess of $300,000 Ultimate Net Loss each and every accident;
  3. Excess of Loss Treaty for three periods between July 1, 1972, and July 1, 1975 with limits of $750,000 Ultimate Net Loss each and ever accident excess of $500,000 Ultimate Net Loss each and ever accident
  4. Excess of Loss Treaty for three periods between July 1, 1975 and July 1, 1979 with limits of $500,000 Ultimate Net Loss each and every accident excess of $750,000 Ultimate Net Loss each and every accident.

II. Contract No: 72l-0003

  1. Excess Loss of Treaty for six periods between July 1, 1966 and July 1, 1972 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $1,000,000 Ultimate Net Loss each and every accident.
  2. Excess of Loss Treaty for six periods between July 1, 1972 and July 1, 1978 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $1,250,000 Ultimate Net Loss each and every accident.
  1. Contract No. 721-0329
  1. Excess at Loss Treaty for two periods between July 1, 1970 and July 1, 1972 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $3,000,000 Ultimate Net Loss each and every accident
  2. Excess of Loss Treaty for three periods between July 1, 1972 and July 1, 1975 with limits of $2,000,000 Ultimate Net Loss each and every accident excess of $3,250,000 Ultimate Net Loss each and every accident.
  3. Excess of Loss Treaty for three periods between July 1, 1975 and July 1, 1978 with limits of $3,000,000 Ultimate Net Loss each and every accident excess of $3,250,000 Ultimate Net Loss each and every accident.

London Broker: Ellinger, Heath, Western & Company

Their Reference No: AH0002/0003/0329

Our File No: 66103-011

We wish to submit our first report to the London Reinsurers of the North Star Reinsurance Company concerning the asbestos -related bodily injury claims brought against nineteen of its assureds companies in multiple jurisdictions throughout the United States.

We have reviewed all of the ReinsuredĂs Home Office files and we have undertaken a substantial independent investigation in an attempt to gather sufficient information to enable us to evaluate the ReinsuredĂs exposure in these matters.

It is our present opinion that several of the assureds involved here present potential exposure to the excess reinsurers on each of the reinsurance contracts covering the periods l966 - 1978. We are recommending loss and expense reserves in this report.

We are certain the excess Reinsurers are aware of the continuing controversy between insurers and insureds in the United States as to whether products liability insurance applies to asbestos related claims during each year of the insured party's exposure to asbestos fibres or upon the manifestation of the resultant asbestos-related disease many years later. Therefore, our recommendations in this report are predicated upon both the manifestation and exposure theories of coverage.

NOTICE TO REINSURED:

The Reinsured has received formal notice of asbestos claims against nine of its assureds. These include; Celotex Corporation; Dana Corporation; Flintkote Corporation; GAF Corporation; General Dynamics Corporation; Owens-Corning; PPG Industries; Shook & Fletcher Insulation Company and Studebaker-Worthington.

The Reinsured, in addition, advises that it is on risk with ten other companies which have been sued as either producers or manufacturers of asbestos products. These are: Armstrong Cork, Atlas Chemical, Combustion Engineering, Hooker Chemical, Mundet Cork, Porter Hayden, Raybestos Manhattan, Ryder Industries, J.P. Stevens and Uniroyal.

General Review of the Asbestos Problem:

We believe it might be useful here to review the magnitude of the asbestos claims situation in the United States in order to provide the excess Reinsurers with a framework within which to evaluate the particular assuredĂs individual situation. It is generally accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry. This is due to the pervasive industrial and commercial use of the mineral with its unique combination of heat resistant and tensile strength characteristics. There are perhaps as many as 3,000 different products in daily use throughout the world which contain asbestos. Despite recent efforts by manufacturers to develop substitutes for the mineral, apparently there is no reasonably priced material which can presently outperform asbestos. Although it is perhaps the largest single occupational health problem of our time, its use as of yet has not been totally banned by the United States Government.

The number of potential future asbestos claims is alarming. In April 1978, the secretary of the United States Department of Health, Education and Welfare estimated that eight to eleven million American workers have been exposed to asbestos since the beginning of World War 2. A study by three agencies of the United States Government projected in 1978 that over the next 30 years, 13% to 18% of all cancer deaths would be asbestos related. In April 1980, the Director of the National Institute for Occupational Safety and Health (NIOSH) concluded that tens of thousands of asbestos related deaths occur annually upon a six month study of asbestos fibre exposure in the workplace.

It would appear reasonable to expect hundreds if not thousands of new asbestos claims at least into the 1990Ăs. This is because it does not appear that any strict safety precautions were taken in the insulation of shipbuilding trades or asbestos manufacturing industries prior to the late 1960Ăs and early 1970Ăs. We believe this generation is applicable to the assureds here.

Our evaluation of asbestos--related claims nation-wide indicates that the typical lawsuit is brought by a construction or shipyard worker employed for several years installing products containing asbestos against all manufacturers whose asbestos products were allegedly used at any of the job sites where he was employed. The amount of asbestos dust from each manufacturerĂs product to which the worker was allegedly exposed or the amount of asbestos dust inhaled during any period of exposure cannot be determined with any precision. Asbestos exposures range from a few years to as many as forty or fifty years.

THE ASBESTOS DISEASES:

The inhalation of asbestos fibres can cause at least three diseases: asbestosis, mesothelioma or bronchogenic carcinoma (also known as lung cancer). Asbestosis is a non-malignant disease acquired from inhaling asbestos fibres of a certain length over a long period of time. Normal body defence mechanisms cannot expel asbestos fibres of a certain length and the fibres become imbedded in lung tissue. The body's reaction therefore is to wall off the fibres by a proliferation of fibrous cells that eventual produce dense scar-like tissue in functional areas of the lungs. This process takes approximately six months and is irreversible. Asbestos increasingly impedes the transfer of gases in and cut of the blood in the lungs which eventually become inadequate to support normal activities, Asbestosis symptoms only become noticeably after many years of scar-like tissue build-up; this is typically twenty years or more after exposure. The symptoms can be manifested many years later even after very limited inhalation with no additional exposure.

Mesothelioma is a malignant condition of the cells lining the chest wall which eventually produces a tumour. The incidence of mesothelioma is almost exclusively among people exposed to asbestos. Tumour growth follows a latent period of more than twenty years of no additional exposure. Death generally follows within two years of diagnosis.

The third asbestos-related disease, bronchogenic carcinoma is a malignancy associated with people exposed to asbestos who also inhale smoke into their lungs. Its latency period before manifestation is between fifteen and twenty years following initial inhalation

ALLEGATIONS AGAINS ASSUREDS AND DEFENCES RAISED:

The great majority of the bodily injury claimants in the cases filed against the various assureds allege they were exposed to asbestos products primarily in the course of their work in the construction of industrial buildings or in the shipbuilding industry. The work allegedly involved the use of the assuredsĂ asbestos insulating materials which had to be fabricated to match the configuration of the object to be insulated. The fabrication frequently involved cutting of new or the removal of old asbestos-containing materials which caused the liberation of asbestos dust particles and fibres into the air.

The theories of liability asserted against the assureds usually lie in negligence and strict products liability. The assuredsĂ defence has been that it was not aware that illness or disease was caused to non-employee users by exposure to asbestos insulation products until the mid 1960Ăs. The defence continues that when the assureds learned that asbestos dust from insulation products could cause injury they immediately put warnings on the labels of their products. We note, however, that some courts have suggested that the mild warning that inhalation of asbestos in excessive quantities over a long period of time could cause injuries conveyed no idea of the true extent of the danger.

In addition to state of the art defences, the assureds frequently argue that smoking habits of claimants and their failure to observe safety precautions contributed to their disease. Further, the assureds are appealing adverse decisions from arguments that the united States Government itself should be held primarily responsible particularly in the naval shipyards cases where the Government specified the asbestos products used and in fact did not change its regulations as to the safe use of asbestos for 31 years until 1969.

Finally, the assureds defend their cases on the causation issue and make the argument that as most asbestos insulation looks and is alike, it would be very unusual for an insulation worker to readily know which product he had used at any given time. This is particularly true in the light of the claims that the claimant was exposed to the assuredsĂ asbestos products 35 to 40 years ago. The assureds further stress that virtually no records of products were maintained by asbestos insulation contractors. Therefore, the assureds claim that testimony as to the use of products many years ago is based upon surmise and not fact.

However, the courts normally have permitted recoveries for asbestos-related claims if claimants have offered testimony to demonstrate exposure to a particular asbestos manufacturer or producerĂs asbestos products and the existence of disease. The claimantĂs inability to fix the exact time of exposure to particular asbestos products will ordinarily not bar recovery. That inability as well as the considerable time lapse between exposure to asbestos fibres and the resultant manifestation of illness have created two theories of insurance coverage: the exposure theory as to date of loss which is based on the idea that a separate injury occurs each time an asbestos fibre is taken into the lungs and the manifestation theory which is based upon the concept that coverage attaches only on the one date many years later when the disease manifests itself.

There are currently no less than twenty Declaratory Judgement actions being litigated between insurers and insureds on this issue in various jurisdictions throughout the United States.

CLAIMS AGAINST INDIVIDUAL ASUREDS:

We now submit a summary of our review of claims brought against each of the nineteen individual assureds at risk with the reinsured together with a description of the pertinent coverage and our evaluation as to loss and costs reserves.

1. Armstrong Cork and Insulation Company:

This assured is a major defendant in the asbestos litigation. It is a Pennsylvania corporation with its principal office in Lancaster, Pennsylvania. It had 1980 sales of $1,244,000. Its 23,100 employees are variously engaged in the manufacture of interior furnishings including floor coverings and insulations and speciality products for the building, automotive and textile industries.

The ReinsuredĂs involvement stems from its three facultative reinsurance agreements with the Home Insurance Company. Under contract NSF 7498 the reinsured carried a $3,000,000 p/o $l5,000,000 p/o $30,000,000 excess of $10,000,000 excess of a $1,000,000 aggregate carried by the Aetna in the January 1, 1969 to January 1, 1972 period. We are advised that for the period between April 1, 1972 to April 1, 1974 the ReinsuredĂs contract NSF 10436 carried $3,000,000 p/o $30,000,000 excess of $10,000,000 carried by the I.N.A. excess of a $1,000,000 products aggregate carried by Liberty Mutual. Finally, the assuredĂs contract NSF 12047 carried $3,000,000 p/o the HomeĂs $15,000,000 p/o $30,000,000 excess of $10,000,000 carried by Liberty Mutual in the April 4, 1974 to January 1, 1977 period.

Our review of this assuredĂs situation indicates that as of present there have been 4,600 claims brought against this assured by individual claimants for alleged asbestos-related bodily injuries. We have also ascertained that this assuredĂs average loss payments and costs to date for each claim amounts approximately to $10,000 per claim.

This assuredĂs substantial involvement is corroborated by the results of several cases that have received publicity in the past few months. Thus we note that the assured has contributed with several other asbestos products manufacturers to several large settlements in various jurisdictions. In March, 1980, it contributed toward a $215,000 settlement in an action brought by a 52 year old insulator in Beaumont, Texas. It also contributed toward a $141,750 settlement with an Oklahoma insulation installer. The assuredĂs contribution was between $8,000 and $18,750. The only non-settling defendant in that case sustained an adverse jury verdict of $450,000.

In November, 1980, the assured contributed with five other asbestos manufacturers toward a $230,000 settlement with a former insulator and it also was a participant with thirteen other asbestos manufacturers in settling six actions recently in Dade County, Florida for a total of $1,200,000. Finally, the assured contributed $12,500 toward a $1,470,570 settlement reached by fifteen asbestos manufacturers with 42 asbestos plaintiffs in Cleveland, Ohio. That settlement included a single claim settlement of $477,250 to the widow of a 46 year old pipe covering insulator of 29 years who died of pleural mesothelioma.

Reserve on Exposure Basis:

Our review of several thousand asbestos-related bodily injury cases indicates that the following percentages of these cases involve allegations of asbestos fibre exposure during the indicated years; 1969: 3.15%; 1970: 3.15%; 1971: 3.01%; 1972: 2.95%; 1973:2.90%; and 1974: 2.69%.

Therefore our per year ground up toss and costs reserve recommendation on an exposure basis for the 4,600 claims filed thus far would be predicated upon 4,600 times the $10,000 approximate average cost per claim equals $46,000,000 times the percentage of cases involving an alleged exposure for that given year. Our per year ground up loss and costs exposure reserves for this assured are thus the following: 1969: $1,449,000, 1970: $1,449,000; 1971: $1,384,600; 1972: $1,357,000; 1973: $1,334,000 and 1974: $l,237,000.

These reserve estimates calculated on an exposure basis are grossly less than the $11 million underlying aggregate product limits beneath the ReinsuredĂs layer here and we therefore do not recommend an exposure reserve for the cases filed thus far against the assured

Reserve on Manifestation Basis:

In the event that the date of loss in the asbestos cases is ultimately determined to be triggered by the date when the disease first manifested itself, please be advised that our study of several thousand asbestos-related bodily injury cases indicates that the following percentages of these cases involve allegations of manifestation within the indicated years: 1969: 0.21%%; 1970: 0.45%; 1971: 0.36%; 1972: 1.51%; 1973: 2.91%; 1974: 3.90%; 1975: 6.00% and 1976: 9.18%.

Thus our per year ground up loss and costs reserve recommendation on a manifestation basis for the 4 ,600 claims filed thus far is based upon 4,600 times the $10,000 approximate average cost per claim equal $46,000,000 times the percentage of cases involving an alleged manifestation for that given year. Our per year ground up loss and costs manifestation reserves for this assured are thus as follows: 1969: $96,600; 1970: $197,800; 1971: $395,600; 1972: $694,600; 1973: $1,292,600; 1974: $1,794,000; 1975: $2,760,000 and 1976: $4,406,400.

Each of these ground up reserve recommendations on a manifestation basis would therefore fall within the $11,000,000 underlying products aggregate beneath the ReinsuredĂs layer here and we therefore do not recommend a manifestation reserve for the cases filed thus far against this assured

2. Atlas Chemical Industries. Inc.:

The Reinsured has no specific knowledge of this assured involvement with asbestos products and our own review of the asbestos litigation does not reflect that this assured is a frequent or major defendant. We do know that it is a Delaware corporation and a subsidiary of the United States Corporation Company, which in turn, is a subsidiary of Core Laboratories, Inc. of Dallas, Texas. Core LaboratoriesĂ 1979 revenues totalled $61,135,000 with net income of $3,146,000.

The Reinsured is attempting to acquire information as to this assuredĂs asbestos claims and has also requested this assured to advise as to its other insurers. Meanwhile we can advise that under its policy NSF 9102, the Reinsured carried 95% part of $2,000,000 part of $10,000,000 excess of $10,000,000 primary coverage on this assured from January 29, 1971 through January 1, 1972.

Reserve:

Because of the minor involvement in asbestos claims and the extent of the underlying coverage we are not recommending a loss payment reserve on this assured.

3. Celotex Corporation:

Celotex Corporation is a wholly owned subsidiary of the Jim Walter Corporation which is one of the 200 largest industrial companies in the United States. Jim Walter Corporation is primarily involved in residential and non-residential construction renovation, remodelling and building materials production. Its annual revenues for fiscal 1980 were $1,984,235,000 with net earnings of $84,202,000. Its products include gypsum wallboard, asphalt roofing, hardboard materials, asbestos pipe, insulation and cements as well as asbestos block and corrugated asbestos paper for insulation purposes.

It appears that Jim WalterĂs asbestos-related interests derive from its 1962 acquisition of majority control of Celotex, which is now a wholly owned subsidiary. In 1972, Celotex purchased a controlling interest in the Panacon Corporation previously know in succession as the Philip Carey Manufacturing Company and the Philip Carey Corporation. The purchase likely included liabilities as well as assets. Between 1906 and 1960, Philip Carey Corporation fabricated asbestos corrugated paper and between 1930 and 1960 it produced several asbestos product lines including asbestos sponges. asbestos cement and block, asbestos tank jackets, asbestos felts and asbestos rope. By 1969, however, the Philip Carey Company had removed asbestos-related products from its main product line but continued to use the mineral asbestos in other products. The 1972 purchase of Panacon Corporation by Celotex also included Carey-Canadian Mines, Ltd., a producer of raw asbestos.

The ReinsuredĂs coverage of Celotex Corporation under Policy NSX-12752 was effective March 1, 1975 through October 1, 1977 with limits of $5,000,000 part of $15,000,000 per occurrence and in annual aggregate in excess of $10,500,000 per occurrence and in annual aggregate carried by Kemper in excess of a $500,000 occurrence/aggregate policy issued by Aetna, which was the Primary insurer of this assured between 1972 and October 1, 1977. While Kemper is an exposure carrier, the Aetna has adopted a manifestation view of coverage and apparently has been allocating its loss payment on this basis. We understand the Aetna maintains that it has expended more than $300,000 on a manifestation basis in the 1976-1977 period.

Because of these differences in Views as to coverage, Celotex as a wholly owned subsidiary filed a Declaratory Judgment Action in 1979 against the Aetna and all of its insurers in Hillsborough County, Florida seeking judicial determination that the exposure interpretation of coverage should govern the policies issued to Celotex, Philip Carey, etc. From this suit we understand that Celotex has been self-insured since October 1, 1977. We also understand that this assured does not have any rds from the 1940s, 1950s or early 1960s regarding its insurance coverage.

Reserve on Exposure Basis:

Our investigation of Celotex indicates that it is a major defendant in the asbestos-related bodily injury litigation. A recent review of the assuredĂs files indicate that there are presently 9,800 claims in suit against this assured. While the assured and its counsel maintain a very aggressive defence approach, we note that the assured has now concluded 458 settlements at an average loss payment of $9,000 per claim. Most of these settlements have occurred in the past two years, In addition, it appears that the average expense factor per closed claim equals, $1,000 and thus we believe the approximate average cost per claim has been $10,000. We therefore believe it proper to assume that the assured will be able to continue to dispose of cases at this average $10,000 figure.

Finally, our review of several thousand asbestos-related bodily injury cases reveals that 2.5% of all the cases involve allegations of exposure in 1975 and 2.3% of all cases involve allegations of exposure in 1976. Therefore our ground up reserve recommendation on an exposure basis for the claims filed thus far would be based on 9,800 claims times $10,000 average cost per claim equals $98,000,000 times 2,5% for the March 1, 1975 - March 1, 1976 year equals $2,450,000. Our ground up loss and costs reserve on an exposure basis for the March 1, 1976 to March 1, 1977 year equals $2,254,000 for the claims filed thus far. And our exposure ground-up reserve for the seven month March 1, 1977 to October 1, 1977 period would be based on $98,000,000 times 2.08% (the percentage of asbestos-related cases involving allegations of exposure in 1977) equals $2,038,400 divided by seven-twelfths of a year equals $1,189,066.

These figures calculated on an exposure basis are substantially less than the underlying aggregate limits carried by Kemper and Aetna and we therefore are not recommending an exposure reserve at this time for the cases tiled thus far.

Reserve on Manifestation Basis:

In the event that the date of loss in the asbestos litigation is ultimately determined to be calculated on the manifestation of disease basis, please be advised that our review of several thousand asbestos-related bodily injury cases reveals that 1975 is set forth as the year of manifestation in 6% of all cases where dates of manifestation are alleged. Similarly, 1976 is set forth as the year of manifestation in 9.18% of the cases and 1977 is alleged in 20.39% of the cases.

Therefore our ground up reserve recommendation on a manifestation basis for claims filed thus far is predicated on 9,800 claims times $10,000 average cost per claim equals $98,000,000 times 6.0% for illnesses manifested in the March 1, 1975 to March 1, 1976 year equals $5,880,000. Our manifestation reserve for the March 1, 1976 to March 1, 1977 year is based on $98,000,000 times 9.18% equals $8,996,400. Finally our manifestation reserve for the seven month March 1, 1977 to October 1, 1977 period would be predicated on $98,000,000 times 20.39% times seven-twelfths equals $11,656,282.

Each of these ground up reserve recommendations on an manifestation basis would therefore fall within either the underlying aggregate limits carried by Kemper and Aetna or, as in the 1977 period, within the ReinsuredĂs retention under Contract No. 721-0002. We therefore are not recommending a reserve to Reinsurers at this time but we do caution that these reserves are predicated only on claims that have been made as of this time. In this connection we can advise that the primary carrier Aetna has established a $9,000,000 manifestation reserve on the 1976-1977 year.

4. Combustion Engineering, Inc.:

This assured as incorporated in Delaware in 1912 and maintains its general offices in Stamford, Connecticut. It is a large corporate conglomerate with 26 subsidiaries which had 1979 net sales of $2,757,504,000 with net income of $97,641,000. The business of Combustion Engineering, Inc. is widely varied but includes the design, engineering and production of screening equipment for general industrial applications and the mining and processing of industrial minerals. It manufactures heavy insulation products and has used asbestos in the manufacture of cements, mastics, boards and blocks.

The ReinsuredĂs involvement with this assured stems from three facultative reinsurance agreements with the Home Insurance Company. Under NSF-5482 from January 1, 1966 to January 1, 1969, the Reinsured carried $2,000,000 part of The HomeĂs $10,000,000 in excess of $5.000,000 carried by Travelers excess of primary products aggregate of $500,000 carried by Travelers. Our information is that the Reinsured came off this risk for a period but then between January 1, 1972 to January 1, 1975 it had under NSF-9969 a facultative reinsurance agreement with the Home Insurance Company carrying a $3,000,000 part of HomeĂs $10,000,000 excess of TravelersĂ $5,000,000 excess of TravelersĂ primary $500,000 products aggregate. Finally, from January 1, 1975-1978 under NSF-12552, the Reinsured carried a $3,000,000 part of HomeĂs $10,000,000 in excess of the TravelersĂ $5,000,000 excess of TravelersĂ primary $500,000 aggregate.

This assured has a substantial involvement in the asbestos-related bodily injury litigation. We note that it participated in the recent $1,470,570 settlement with 42 claimants in Cleveland, Ohio. It is most frequently a named defendant in the insulation cases.

Our information is that there have been 4,800 claims to date brought against this assured which are all being defended by the Travelers. We are advised that approximately a thousand claims have been concluded by this assured but we do not have reliable information as to the average loss payment being incurred in the resolution of its claims. From our review of the overall asbestos litigation it is our estimate that this assured is expending approximately $10,000 in average loss payment and defence costs per claim.

Reserve on Exposure Basis:

Our study of several thousand asbestos related bodily injury shows the following percentages of all filed cases to date involve allegations of exposure within the indicated years: 1966: 3.22%; 1967: 3.20%; 1968: 3.16%; 1972; 2.95%; 1973: 2.90%; 1974: 2.69%; 1975: 2.5%; 1976: 2.3% and 1977: 2.08%.

Therefore our ground up reserve recommendation on an exposure basis for the claims filed thus far would be based on 4,600 claims times $10,000 average cost per claim equals $43,000,000 times 3.21% for the 1966 policy year equals $1,545,600. On this basis our ground up exposure reserve recommendation for the known claims to date for the remaining years when the Reinsured was at risk would be as follows: 1967: $1,536,000; 1969: $l,516,800; 1972: $1,416,000; 1973:$l,392,000; 1974: $1,291,200; 1975:$l,200,000; 1976: $1,104,000 and 1977: $998,400.

These reserve estimates calculated on an exposure basis for claims filed thus far are substantially less than the underlying limits carried by the Travelers and we therefore are not recommending an exposure reserve to the excess Reinsurers at this time.

Reserve on Manifestation Basis:

In the event that the date of loss in the asbestos cases is finally determined to be triggered by the date of manifestation of disease then our reserve recommendation would be based on the following considerations. We have reviewed several thousand asbestos related bodily injury cases which show that the following percentages of all the cases filed to date allege dates of manifestation within the indicated years: 1966: 0.07%; 1967: 0.28%; 1968: 0.28%; 1972: 1.50%; 1973: 2.80%; 1974: 3.90%; 1975: 6.00%; 1976: 9.18%; 1977: 20.39%.

Therefore our ground up reserve recommendation on a manifestation basis for the cases filed thus far is based on 4,800 claims times $10,000 average cost per claim equals $49,000,000 times 0.07% for the 1966 policy year equals $33,600. Using this same basis our ground up manifestation reserve suggestion for known claims thus far for the remaining years when the Reinsured was on risk is as follows: 1967: $134,400; 1968: $134,400; 1972: $720,000; 1973: $1,344,000; 1974: $1,872,000; 1975: $2,880,000; 1976: $4,406,400, and 1977: $9,787,200.

Therefore on a manifestation basis for claims filed thus far we would not recommend a reserve for the 1966-1976 years because of the $5,500,000 underlying products coverage carried by the Travelers. However, we do recommend to the excess Reinsurers a manifestation reserve for claims filed to date for the 1977 policy year predicated upon $9,787,200 less $5,500,000 underlying carried by Travelers equals $4,287,200 times the ReinsuredĂs 30% share of the HomeĂs $10,000,000 layer equals $1,286,160 less $750,000 retained by the Reinsured equals a net reserve to the Excess Reinsurer of $536,160 indicating a Full loss under Contract No. 721-0002 and a $36,160 loss under No. 721-0003.

  1. Dana Corporation:
  2. This large corporate conglomerate was incorporated in 1916 and today has 25 wholly owned subsidiaries. It had 1979 net sales of $2,761,135,000 with net income of $164,177,000. Its general office is located in Tolado, Ohio and its business is generally divided into two segments: vehicular and industrial. The vehicular segment includes the manufacturing and marketing of a wide variety of engine and vehicle parts including clutches. The industrial segment is involved in the manufacture and marketing of a broad range of products for industrial markets.

    The Reinsured has both direct and reinsurance involvement with this assured. Under its direct policy NSX-7864 the Reinsured provided coverage of $5,000,000 p/o $20,000,000 excess of $10,000,000 excess of $1,000,000 products aggregate in the March 23, 1969 to May 23, 1972 policy period. We understand that the Reinsured in turn facultated out $2,000,000 of its limits on this placement.

    The Reinsured also carried facultative reinsurance with the Home Insurance Company under NSF-11249 from March 6, 1973 to June 1, 1976 carrying $3,000,000 p/o $25,000,000 p/o $50,000,000 in excess of a $50,000,000 primary coverage. The Reinsured also carried this risk from June 1, 1976 to June 1, 1977 under NSF-1399 for $3,000,000 p/o $15,000,000 (The Home) p/o $50,000,000 excess of $50,000,000 primary coverage.

    The Reinsured is unaware of the total number of asbestos claims presently pending against this assured. However, Dana has put the Reinsured on notice of at least one claim for asbestos-related products liability coverage. Our review of pending asbestos actions nation-wide fails to disclose the assured as an prominent defendant in the asbestos litigation.

    Reserve:

    While we do not know the status of this assured in regard to other products liability claims, from the information at hand we do not believe a reserve is required for its asbestos exposure.

  3. Flintkote:

The Reinsured wrote this assured on a direct excess basis and also had two facultative reinsurance contracts with the Employers Liability Assurance Corporation (ELAC). In the December 31, 1964 to December 31, 1967 period the Reinsured under direct excess Policies NSX 5187 and 5232 wrote $4,000,000 limits excess of $3,000,000 for both United States and Canadian operations. It is our understanding that during this period the assured carried a $25,000 per occurrence deductible but also maintained a $100,000 limit in annual aggregate products liability.

In a subsequent period between December 31, 1967 and December 31, 1973 the Reinsured under agreements NSF 6785 and 9178 facultatively reinsured ELAC for $3,000,000 p/o $14,000,000 excess of $1,000,000 which we believe was carried by American Mutual Liability Insurance Company.

This assured is a Massachusetts corporation with its general offices in Stamford, Connecticut. It owns eight subsidiaries and its 1978 net sales totalled $730,175,000 with net profits of $37,721,000. It is engaged in the manufacturing, distribution and marketing of various building and construction materials. We understand that the assured does not now mine or produce asbestos but that it did have a wholly owned Canadian subsidiary corporation that operated an asbestos mine in Quebec from 1946 to 1971. This subsidiary provided mineral asbestos to the assured and, to a lesser extent, to unaffiliated customers.

We know of no case to date where the assured has been sued because of its mining operations. The assured manufactured no less than 40 different products containing asbestos including cement pipe, shingle and roofing materials, floor tiles and mastic pastes, liquids and solvents used in insulation work. The assured maintains that none of its products can be employed so as to liberate asbestos dusts or fibres into the air.

We know of no case against the assured that has gone to trial as of yet. This assured does not appear to be one of the major producers of insulation materials but it has persistently been named as a defendant in cases involving members of the International Union of Heat, Frost, and Insulating Workers who work in the building trades.

Reserve on Exposure Basis:

Our investigation reflects that to date there have been 2,078 lawsuits brought against the assured involving 3,724 individual claimants. Our information is that the assured has settled or closed several hundred claims and has been averaging a loss and cost payment of approximately $3,000 per claim.

At the time our study of several thousand asbestos claims to date reveal that the following percentages of all filed cases to date involve allegations of exposure during the indicated years; 1965: 3.24%; 1966:3.22%; 1967: 3.20%; 1968:3.16%; 1969:3.15%; 1970: 3.15%; 1971: 3.01%; 1972: 2.95%; and 1973: 2.90%.

Therefore our ground up reserve recommendation on an exposure basis for the claims filed thus far would be based on 3,724 claimants times $3,000 average cost per claimant equals $11,172,000 times 3.24% for the 1965 policy year equals $361,972. On this basis our ground up exposure reserve recommendation for known claims to date for the remaining years when the Reinsured was on risk would be as follows: 1966: $359,738; 1967. $357,504; 1968: $353,000; 1969: $351,918; 1970: $351,9l8; 1971: $336,277; 1972: $329,574 and 1973; $323,998.

Because of the underlying insurance in existence here we would not recommend a reserve for the excess Reinsurers for the claims filed thus far on an exposure basis.

Reserve on Manifestation Basis:

No reserve would be required for the excess Reinsurers on a manifestation basis for the 1965-1973 years.

7. GAF (Formerly Ruberoid Company):

This assured was incorporated in 1929 in Delaware ant maintains its principal office in New York City. Its asbestos-related operations derive from its May, 1967 merger with the Ruberoid Company which manufacturers asbestos products at two New Jersey locations as well as in Pennsylvania and Vermont. The Ruberoid Company of New Jersey had manufactured industrial thermal insulation products containing asbestos since the late 1920s and early 1930s. However, by early 1966 Ruberoid began labelling its industrial thermal insulation products with a warning of the dangers of asbestos fibre inhalation.

The assured in 1979 terminated its asbestos cement and mineral fibre operations at its Missouri and New Jersey locations. The assured continues to manufacture building materials and this product line includes roofing insulation, flooring for residential construction, re-modelling and built-up roofing for commercial and institutional buildings. In 1979 the assured had gross sales of $1,213,243,000 with income of $57,555,000. It currently owns 52 subsidiaries world-wide.

The Reinsured provided direct excess coverage on this risk for the period between May 1, 1977-1978 under policy no. NSX-15154. The Reinsured carried $2,000,000 part of $5,000,000 excess of $46,000,000 underlying coverage.

This assured is one of the major defendants in the asbestos related bodily injury litigation. Our investigation shows that there currently are 5,500 individual claims brought against the assured. However, we are advised that this assured has been settling its asbestos cases on an average of approximately $5,000 per claim.

Reserve:

Because of the protection of the $46,000,000 underlying coverage provided to this assured during the 1977 policy period, we do not believe an exposure or a manifestation reserve is required by the Excess Reinsurers on the basis of the claims filed to date against the assured.

8. General Dynamics (Electric BoatĂ Division and Asbestos Corporation, Ltd.) :

The reinsured wrote this direct excess liability coverage from November 29, 1966 through July 1, 1972 under three policies. NSX-5933 effective November 29, 1966-1969 provided $3,000,000 part of $20,000,000 excess of $80,000,000 coverage. During the period between September 1, 1967 and July 1, 1970 under NSX-6546 the reinsured provided $4,000,000 p/o $8,000,000 excess of $15,250,000 excess of $17,000,000 primary coverage. Finally, under NSX-8558 from July 1, 1979 through July 1, 1972, the reinsured provided $3,000,000 p/o $25,000,000 excess of $25,000,000 primary coverage. The assuredĂs primary carriers during these periods of coverage included Maryland Casualty, the Insurance Company of North America, Aetna and the Chubb Insurance Company.

This assured is, a Delaware Corporation which maintains its executive offices in St. Louis, Missouri, Its involvement in asbestos began with its merger in 1952 with the Electric Boat Company of Groton, Connecticut and with its acquisition of part of the Asbestos Corporation, Ltd. of Quebec, Canada in April, 1973. General Dynamics is engaged in the design and manufacture of various products for the aerospace and shipbuilding industries as well as asbestos mining and milling operations. In 1979 net sales totalled $4,059,576,000 with a net income of $186,156,000. Its Electric Boat Division employs over 24,000 workers alone. It appears that this Division is the principal manufacturer of submarines in the free world. During World War II alone, over 100,000 of its workers were possibly exposed to asbestos products during the fabrication of ships for the war effort. We note that a 1975-1976 study which was undertaken by the purported leading medical researcher in the asbestos related disease field, reported that of 1,000 Electric float workers tested under x-ray that 46% were found to have some lung abnormality. We further note that the assuredĂs Electric Boat division is still unable to specifically identify all of the asbestos which was used in its submarines during the past 40 years.

There have been approximately 350 lawsuits filed by shipyard employees of the Electric Boat Division in the United States District Court in Hartford, Connecticut against fourteen asbestos manufacturers and distributors. A package of fifty of the lawsuits has been settled for a total loss payment of approximately $6,000,000. Although there were attempts to involve the assured in these settlements, as it was a third party defendant, it is our understanding that the assured did not contribute to any of the settlements. All of these claimants have filed WorkmanĂs Compensation claims against the assured but this liability would not involve the ReinsuredĂs coverage.

We are advised that the assured owns 54.6% of Asbestos Corporation, Ltd, which has supplied raw asbestos fibres to various asbestos product manufacturers in the United States since at least 1931. This company has been sued by Forty Eight Insulations, Inc., an asbestos insulation manufacturer seeking indemnity for all the loss payments it has made in connection with bodily injury claims. Asbestos Corporation, Ltd. has also been named as a defendant with eleven other suppliers in bodily injury actions brought by Johns Manville employees in Illinois and by CertainTeed employees in Pennsylvania alleging a failure to warn of the dangers of raw asbestos and a failure to properly package the raw asbestos.

For similar reasons this assured was sued with four other asbestos suppliers by 623 employees of the Raybestos Manhattan plant in Passaic, New Jersey. We are advised that a total settlement of $16,000,000 was achieved in these suits and that Asbestos Corporation LtdĂs share was $1,825,000.

Reserve:

We do not believe this assuredĂs insurers would be liable on an exposure basis for claims against Asbestos Corp., Ltd. for injuries sustained prior to the assuredĂs acquisition of Asbestos Corp. Ltd. in 1973. Further, we do not believe the assured in the 1966-1972 period covered here could be found liable on a manifestation basis. Therefore we believe the only potential liability to the Reinsured here could come from the liability of the Electric Boat Division on an exposure basis in the 1966-l972 years.

Because there have been only 350 claims filed to date by Electric Boat Division employees and because of the limits of the underlying Coverage beneath the ReinsuredĂs layers, we do not believe a loss reserve should be established by the excess Reinsurers on this risk.

9. Hooker Chemical and Plastics Company:

This company has been a wholly owned subsidiary of Occidental Petroleum Corporation since 1968. However, it carried its own products insurance coverage until March 1, 1973 when it was insured under Occidental PetroleumĂs coverages.

The Reinsured had numerous reinsurance involvements with this assured. Under facultative Agreement NST-6271 with the Monte Insurance Company it wrote 60% p/o $5,000,000 p/o $20,000,000 excess of $5,000,000 products aggregate excess of $10,000,000 primary carried by the Hartford in the May 12, 1967 to December 1, 1970 period. Under facultative agreements NSF 8919 and 8930 with the Home it wrote respectively $1,000,000 p/o $4,000,000 excess of $1,000,000 products aggregate excess of $10,000,000 primary carried by the Hartford and also 40% of $5,000,000 p/o $20,000,000 excess of $5,000,000 products aggregate excess of the Hartford $10,000,000 primary in the December 1, 1970 to March 1, 1973 period.

Following March 1, 1973 the Reinsured had facultative agreements with the Unigard Insurance company on Occidental Petroleum which included Hooker Chemical Company. These included policies (1) NSF 11256 and (2) NSF 11257 and (3) NSF 11258 in the March 1, 1973 to March 1, 1976 period with respective limits of (1) $1,000,000 p/o $7,000,000 p/o $15,000,000 excess of $10,000,000 including $1,000,000 primary by Hartford as well as (2) $1,000,000 p/o $13,000,000 excess of $25,000,000 including primary and (3) $1,000,000 p/o $10,000,000 p/o $25,000,000 excess of $50,000,000 including primary.

Following March 1, 1976 for one year until March 1, 1977 the Reinsured had direct excess cover NSX-13822 on Occidental which would include Hooker with limits of $2,000,000 p/o $25,000,000 excess of $75,000,000.

Hooker Chemical is involved in the manufacture of a broad line of chemical and plastics products with its Home offices near Buffalo, New York. We are not familiar with this assuredĂs use of or involvement with asbestos, however. The Reinsured has received no notice from its ceding Companies as to any asbestos claims against this assured and our own review of the asbestos litigation indicates that this assured should not be heavily involved. Hence we have no information as to number of claims or whether any loss payments have been made. The only litigation that we have independently noted involves a group of asbestos related bodily injury actions filed in Chicago by 51 employees of the Johns-Manville Corporation in Waukegan, Illinois. The action names 34 defendants, including the assured, However, the Chicago litigation is in its very early stages and we are unable to report on the nature of the evidence, if any, against this assured.

We recommend no reserves in connection with this assuredĂs asbestos involvement. Nevertheless we should mention here this assuredĂs serious exposure arising out of the notorious bodily injury and property damage claims allegedly caused by its deposit of toxic chemical wastes at the "Love Canal" and other sites near Niagara, New York in the 1942-1953 years. The Reinsured seemingly could be involved in substantial loss payments because of this exposure.

10. Mundet Cork Company:

The Reinsured provided coverage to this assured from July 15, 1962 through January 1, 1964 under two contracts. Under NSX-3275, the Reinsured provided $2,000,000 excess of a $25,000 self-insured retention per accident for excess WorkmenĂs Compensation and EmployerĂs Liability. The Reinsured reinsured 50% of its exposure under this contract.

Then from July 15. 1963 through January 1, 1964, the reinsured under NSX-3275 provided $2,000,000 excess of a $25,000 self-insured retention per accident for excess WorkmenĂs Compensation. and EmployerĂs Liability. The reinsured advises that it has no information regarding any asbestos claims filed against this assured and our independent investigation does not disclose that this assured had a substantial involvement.

Reserve:

From the information available we cannot recommend a reserve. We will attempt to encourage the Reinsured to obtain additional facts.

11. Owens Corning Fiberglass Corporation:

The ReinsuredĂs involvement with this risk stems from its facultative reinsurance agreement with the North River Insurance Company. Its coverage was for a policy period from January 18, 1974 through October 24, 1976 under Contract No, NSF-12263 with limits of $3,000,000 part of $25,000,000 part of $50,000,000 per occurrence/aggregate in excess of $25,000,000 per occurrence/aggregate excess of the primary $1,000,000 occurrence/aggregate carried by Aetna Life and Casualty Company.

This assured was incorporated in Delaware in 1938 and maintains its general offices in Toledo, Ohio. Owens-Corning and its 37 subsidiaries realised 1979 net sales of $2,245,l64,000 with net income of $109,266,000. Most of the companyĂs revenue is derived from its glass fibre business and activities incidental thereto. Its insulation and construction products include thermal and acoustical insulation for residential and commercial construction, automobile and rooting materials.

This assured is a substantial defendant in the asbestos litigation. We note that in December, 1979 a jury returned a verdict against the assured and other defendants in favour of two plaintiffs in the amount of $435,000 each. That verdict was subsequently set aside as excessive. However, Owens-Corning discharged itself from potential liability in 40 other pending law suits in Cleveland in January, 1981 for a total loss payment of $500,000. In one Ohio case this assured contributed $65,000 to a single person settlement of $477,250.

Our general review of this assuredĂs situation reflects that as of September, 1980 there had been approximately 4,000 claims brought. We expect that this number has increased dramatically since that time. The assured had concluded 416 cases with total loss payments of $4,181,313 or an average loss of $10,051 for each closed file.

Reserve:

In view of the underlying $26,000,000 aggregate limits we do not believe a reserve is required by the excess Reinsurer for the claims brought thus far against assured.

12. PPG industries, Inc. (Pittsburgh Corning Corp.)

The Reinsured had separate involvements with this assured in the 1966 to 1978 periods. First of all in the October 1, 1966 to July 24, 1970 period it provided facultative reinsurance to the Employers Liability Assurance Corporation (ELAC) under Policy NSF-5915 for $500,000 part of the first $2,000,000 part of $10,000,000 excess of $1,000,000 carried by primary insurers, During the same period under the same policy the Reinsured also carried $l,000,000 part of $5,000,000 (ELAC) excess of $5,000,000 excess of underlying $1,000,000 primary.

The Reinsured also had facultative agreements with the Home Insurance Company. Under policies NSF-5893 and NSF-8717 and NSF-11082 the Reinsured during the periods between October 18, 1966 through July 1, 1976 carried 15% of $1,500,000 of the HomeĂs excess layer of $10,000,000 excess of $31,000,000 underlying.

The Reinsured also wrote this risk on a direct excess basis. Under NSX-10945, effective December 1, 1972 through July 1, 1976, the reinsured carried $1,500,000 of a $4,000,000 layer excess of an underlying $46,000,000. And, under NSX-15358, the reinsured carried $1,000,000 part of $25,000,000 excess over $50,000,000 underlying from July 1, 1977 through July 1, 1978.

Finally, the reinsured had a facultative agreement with ISLIC in the July 1, 1976 to 1977 period with limits of $3,000,000 p/o $5,000,000 p/o $10,000,000 excess of $30,000,000 excess of primary $1,000,000 aggregate products carried by the Hartford.

General Background:

PPG Industries, Inc. was incorporated in Pennsylvania in 1883 and subsequently reincorporated there in 1920. It was the first commercial plate glass company in the United States. In 1979, the assured enjoyed net sales of $3,091,800,000 and net income of $213,900,000. The assuredĂs principal businesses include the manufacture and distribution of automotive glass, paint and finishes as well as industrial paints, resins and glasses. In May, 1962, the assured acquired the Rubber and Asbestos Corporation of Bloomfield, New Jersey to add adhesive products to its paint and brush division. In 1973, PPC sold its fibre glass insulation assets to CertainTeed Products Corporation and a major portion of its cement assets to the Filtro Corporation. We note from our review of the asbestos litigation nation-wide that CertainTeed Products Corporation is frequently named a defendant in these matters.

Our review of PPG industries led us to conclude that this company was not a major manufacturer asbestos products. PPG currently has been sued by approximately 1,200 claimants but thus far it has no history of making substantial loss payments in the asbestos related bodily injury claims. Travelers as its primary insurer did pay $2,250,000 in the $20,000,000 Tyler, Texas settlement but this loss was paid as an operations loss and not as a products loss.

We believe the ReinsurersĂ exposure here is more likely to come through the Pittsburgh Corning Corporation, 50% of which apparently is owned by PPG. It is our understanding that Pittsburgh Corning had its own primary insurers with $1,000,000 aggregate products limits but that in the periods involved here the excess policies issued to PPG covered Pittsburgh Corning as well.

The primary carrier of Pittsburgh Corning during the 1966 to 1970 period was the Travelers and INA was the primary carrier until July 1, 1973. Kemper provided $1,000,000 products aggregate coverage on Pittsburgh Corning in the 1973-1975 period but we are advised that there was a $5,000 per claim deductible at that time. It appears that Pittsburgh Corning was uninsured on a primary basis in the 1975 to 1976 years and that it is claiming that the Home Insurance Company, which wrote an umbrella $2,000,000 cover over $1,000,000, is its primary carrier during that period.

In any event because of the underlying limits it would appear that the ReinsuredĂs most obvious vulnerability would fall under its facultative agreements with ELAC in the 1966-1970 periods. The primary insurer at that time was the Travelers, which as an "exposure" carrier, claims to have been tracking its loss payments over all of the years of alleged exposure for each individual claimant to whom a loss is paid. As of December, 1979 the Travelers claimed it had impaired its annual products aggregate by $180,057, $193,939, $200,762 and $263,722 respectively during the 1956 through 1969 policy years. We have not been able to obtain the current position of TravelersĂ underlying aggregate.

Nevertheless, our review reflects that Pittsburgh Corning is substantially involved in the asbestos litigation. We note that in 1979 a Virginia jury returned a verdict on behalf of a former insulator at the Newport News shipyard against Pittsburgh-Corning and two other asbestos producers for $435,000.

While this verdict was later set aside it does reflect this assuredĂs involvement. Similarly in January, 1980, Pittsburgh Corning and four other defendants settled a single asbestos action for $113,500. It also recently settled 22 separate actions filed in Maine and Massachusetts by former construction or shipyard workers in the total amount of $192,000.

Reserve on Exposure Basis:

Our review of the Pittsburgh Corning risk reflects that currently 5,400 claims have been brought and that this assured has been averaging approximately $10,000 in loss and cost expenses for all claims concluded thus far. At the same time our survey of several thousand asbestos-related bodily injury cases indicates that the following percentage of these cases involve allegations of exposure during the years when the Reinsured carried facultative reinsurance on ELAC: 1967: 3.20%; 1968: 3.16%; 1969: 3.15%; 1970: 3.15%.

Therefore our per year ground up loss and Costs reserve recommendation on an exposure basis for the 5,400 claims filed thus far would be based on 5,400 claims times $10,000 approximate average cost per claim equals $54,000,000 times the percentage of cases involving an alleged exposure for that given year. Therefore our per year ground up exposure reserve for this assured are as follows: 1967, $1,728,000; 1968: $1,706,400; 1969: $1,701,000; 1970: $1,701,000.

The net exposure reserve to the Reinsured would be the above ground up reserves less the TravelersĂ $1,000,000 aggregate times the ReinsuredĂs 25% share of ELACĂs first excess layer. The ReinsuredĂs net exposure reserves on this basis would be 1967: $182,000; 1968: $176,600; l969: $175,250 and 1970: $175,250. These reserves would all fall within the ReinsuredĂs retention under Contract No. 721-0002 and thus no reserve is recommended to the excess Reinsurers at this time.

Reserve on a Manifestation Basis:

We do not believe a manifestation reserve would be required for this assured.

13. Porter-Hayden Company:

This assured is a Baltimore, Maryland Corporation which had 1980 sales of $19,000,000. Its 150 workers produce certain products containing asbestos including friction materials, glass insulations and packings.

The Reinsured provided coverage to this assured under policy NSX-14130 from June 28, 1976 through May 26, 1977 with limits of $2,000,000 excess of $7,000,000 excess of $1,000,000 products aggregate darned by the Hartford.

Despite its obvious involvement with asbestos products, this relatively small assured does not appear to be a major defendant in the asbestos litigation. The Reinsured has received no notice of any pending claims against the assured. We will press the Reinsured to obtain additional information.

Reserve:

Under the present circumstances we do not recommend a loss reserve to the Reinsurers on this risk.

14. Raybestos-Manhattan Corporation:

This assured was incorporated in 1923 and its principal offices are located at Trumbull, Connecticut. Its business is the manufacturing and marketing of energy absorption and transmission products, fastening systems arid custom engineered materials. Raybestos-Manhattan operate 10 manufacturing plants and five brake products manufacturing centres throughout the United States. Its 1979 net sales were $294,872,000 with net income of $5,180,000. This assured is a major producer of friction products and, until very recently, a substantial portion of its product line contained asbestos.

The Reinsured here provided coverage under Policy NSX-9672 from September 1, 1971 through September 5, 1972 for $1,000,000 excess of a $35,000 self-insured retention [or WorkmanĂs Compensation and EmployerĂs Liability. Our review of the ReinsuredĂs policy reveals that under Exclusion (e) Employers Liability under Section 1(b) for bodily injury caused by disease would be excluded unless prior to 36 months after the end of the contract period a written claim is made or a suit brought because of such injury or death. We believe this exclusion should protect the Reinsured from common law indemnity claims brought against it by other manufacturers or producers of asbestos products who have been sued by the assuredĂs employees.

Nevertheless the Reinsured must be deemed to face substantial potential exposure here. Even though the assured to date has not put the Reinsured on notice of any claims, we must advise that the recent California Supreme Court decision in the Rudkin case held that an employee of an asbestos product manufacturer can sue his employer directly for fraud or misrepresentation in concealing the dangers of working with asbestos. Clearly, this decision could portend grave potential exposure to asbestos manufacturers and their EmployerĂ Liability insurers. Formerly, employees have been limited to WorkmanĂs Compensation scaled benefits and could not sue their employers directly.

In this regard we note that Raybestos-Manhattan also has been named a defendant in a $66,000,000 law suit filed in Pennsylvania on behalf of named and an unknown number of unnamed present and former employees at its Manheim, Pennsylvania plant seeking damages for alleged injuries resulting from asbestos exposure. The assuredĂs defence as above recited is that under Pennsylvania law, WorkmenĂs Compensation is the exclusive remedy for employees allegedly injured on the job.

This particular assured must be deemed to be vulnerable to these types of suits because of the availability of several letters written by its President in the 1930Ăs, Sumner Simpson, which tend to indicate that this assured was aware of the danger of inhaling asbestos fibres at that time and may even suggest that there was an attempt to conceal this information.

We can advise that more than 600 of this assuredĂs employees at a New Jersey Manufacturing plant recently obtained a $16,000,000 settlement against various suppliers of asbestos to the assured.

Reserve:

The Reinsured has not been put on notice of any claims by this assured and it does not carry a loss reserve at this time. Under these circumstances we do not recommend a reserve to the excess Reinsurers but we do believe this situation should be closely monitored.

I5. Ryder Industries:

The RainsuredĂs involvement with this risk stems from its treaty no. NS-1196 with Surplus Underwriters wherein during the period between July 1, 1978 through June 6, 1980 it provided reinsurance of $1,000,000 in excess of $15,000 each occurrence. Surplus LinesĂ coverage on this assured, however, is only $300,000 per occurrence and in products aggregate and thus the ReinsuredĂs exposure is $285,000 excess of $15,000 on an aggregate basis.

We have been able to obtain very little information regarding this assured but can advise that it manufactured cement which it sold for constriction uses. Ryder reports that it discontinued the use at asbestos in its cement in 1966. Prior to that time its cement product purportedly contained less than 1% asbestos.

The reinsured is aware of only four or five law units filed against this assured nation-wide. Because the assured produced such a small amount of asbestos-containing cement, the Reinsured believes its exposure is minimal. The Reinsured has established no loss reserve on this assured.

We can further advise the excess Reinsurers that our own review of asbestos litigation fails to disclose Ryder Industries as frequent defendant in the asbestos cases.

Reserve:

No reserve is recommended because it appears that the captioned treaties had expired prior to the effective date of ReinsuredĂs coverage on this risk.

16. Shook and Fetcher Company:

The Reinsured provided direct excess coverage on this risk under Policy No: NSX-13815 from March 12, 1976 through March 12, 1977 with limits of $1,000,000 per occurrence/aggregate in excess of $300,000 per occurrence/aggregate carried by the Aetna Life & Casualty Company.

The assuredĂs main office is in Birmingham. Alabama. It had 1980 sales of approximately $30,000,000. It has 550 employees and is engaged in the shipping of insulation materials including contracting, commercial, industrial and marine insulation. Some of the products shipped by this assured contain asbestos.

The ReinsuredĂs files reflect that only nine Suits are pending against the assured and that all of them are in Alabama. The Reinsured advises that the primary insurer Aetna has undertaken the defence of this assured and has specifically reserved its right to seek indemnity against any and all manufacturers of asbestos products which the assured claims to have merely passed along in the chain of distribution in the event that it is not dismissed from the asbestos actions.

Reserve:

Under the facts as known this assured does not appear to have substantial exposure in the asbestos litigation and we are not recommending a reserve to the excess Reinsurers.

17. J.P. Stevens a Company, Inc.:

This assured was incorporated in Delaware in 1923 and maintains its principal office in New York City. The assured and its fifteen wholly owned subsidiaries had 1979 net sales of $1,833,076,000 with net income of $47,665,000. This assured is engaged primarily in the apparel, home furnishings, industrial products and commercial printing businesses. Its industrial product include filtration products, insect screening, fabrics tar headliner for automobiles and moulded floor carpeting for autos.

The Reinsured carried direct excess coverage on this assured under policy NSX-14007 with limits at $3,000,000 part of $30,000,000 second layer excess of $60,000,000 first layer excess coverage over an unknown primary between June 1, 1976 and November 1, 1977.

The Reinsured has no information regarding the claims status of this assured or the current underlying aggregate position. Our own review of asbestos litigation throughout the United States discloses that the assured has been named as a defendant in several cases including some cases in Hawaii involving clutch and brake mechanics and shipyard workers. However, this assured does not appear to be substantially involved in the asbestos litigation.

Reserve:

Because of the underlying Coverage we are not recommending a loss reserve on this risk.

18. Studebaker Worthington:

The Reinsured covered this assured by virtue of three separate facultative agreements from January 1, 1968 through January 1, 1973 and from January 1, 1974 to January 1, 1977. Under NSF 6817 from January 1, 1968 - 1971 the Reinsured had a facultative agreement with the Continental Insurance Company with limits at $3,000,000 p/o $4,000,000 p/o $10,000,000 excess of $1,000,000 primary coverage carried by LloydĂs Underwriters and the Insurance Company of North America. Under WSX-8963 from January 1, 1971 through January 1, 1973, the reinsured carried $2,000,000 p/o $4,000,000 in excess of $1,000,000 primary coverage. We are advised that the reinsured is on notice for claims for that policy period. Finally, under NSF-12052 effective January 1, 1974 - 1977, the reinsured had a facultative agreement with the Unigard with limits of $3,000,0 part of $40,000,000 in excess of $40,000,000 million underlying coverage ű

This assured is a Delaware Corporation engaged in the production of auto brakes and lighting product,. In September, l979, it was purchased by the McGraw-Edison company.

Our investigation into this assuredĂs involvement in the asbestos litigation field reveals only three lawsuits filed against it in Sucks County, Pennsylvania. It is alleged that the assured sold to claimantsĂ employer asbestos products including industrial brake blocks and brake linings, They claim to have used the assuredĂs products between 1953 and 1976.

Reserve:

Because of the assuredĂs seemingly minimal involvement we are not recommending a loss reserve to the excess Reinsurers on this risk.

on this risk.

19. Uniroyal. Inc.

The ReinsuredĂs involvement with this assured stems from both direct excess underwriting arid contracts of facultative reinsurance with the Home Insurance Company. Under Policies Nos. NSF 5199 and 5206 the Reinsured carried $100,000 p/o the HomeĂs $300,000 and $l,000,000 p/o the HomeĂs $4,000,000 excess of $2,000,000 excess of the assuredĂs $100,000 self insured retention for products in the February 1. 1963 and May 1, 1967 policy periods. Then in the May 1, 1967 to September 8, 1972 period the Reinsured under policy NSF 6431 carried $250,000 p/o the HomeĂs $750,000 excess of $250,000 and $2,000,000 p/o the HomeĂs $4,000,000 excess of $1,000,000 and $750,000 p/o $5,000,000 excess of $5,000,000 all of which coverages being excess of the assuredĂs $100,000 self insured retention for products.

The ReinsuredĂs direct excess coverage was provided under policy NSX 6191 in the May 1, 1967 to May 1, 1970 policy periods with limits of $5,000,000 p/o $35,000,000 excess of $50,000,000 excess of $100,000 self insured retention. Under policy NSX 10884 in the November 1, 1972 to January 1, 1973 period the Reinsured wrote $500,000 p/o $30,000,000 excess of $20,000,000 and in the January 1, 1973 to September 9, 1975 period it wrote $1,500,000 p/o $30,000,000 excess of $20,000,000.

In addition, under NSX 11369 in the May 1, 1973 to September 8, 1975 period the Reinsured carried $1,000,000 p/o $25,000,000 excess of $50,000,000 and under NSX 13259 in the September 8, 1975 to 1976 period it carried $l,000,000 p/o $25,000,000 excess of $50,000,000.

Uniroyal, Inc. was incorporated in New Jersey in 1892 as the United States Rubber Company. Its present name was adopted in February, 1967. With its 39 subsidiaries world-wide, Uniroyal enjoyed 1979 net sales of ˙ $2,574,588,000 with a net income of $120,000,000. The assuredĂs chief business interests consist in the manufacture of tyres, chemicals and plastic products including industrial adhesives.

This assured does not appear to us to be one of the major defendants in the asbestos cases. Nevertheless. it was involved in the production of certain asbestos products and it has been charged with forwarding these products to the United States Navy which sent them to certain shipyards where the various claimants worked. The claimants thus far, however, have had difficulty in tracing the identity of the assuredĂs products because the assured apparently dealt mainly with the United States Navy and there have been no records discovered thus far indicating the sale by the Navy to the shipyards where the claimants were employed.

Our investigation reflects that to date there have been approximately 400 asbestos lawsuits filed against this assured involving about 800 individual claimants. Most of the claims are in Philadelphia courts. This assured has settled seven claims thus far for an approximate average cost per claim of $2,500. This average may shortly be reduced, however, because the assured has a tentative agreement with a Philadelphia claimantĂs attorney to settle 82 additional claims for $1,000 apiece upon the agreement that the assured will not be named in future suits by that attorney.

This assured has also been named as a defendant in five polyvinyl chloride (PVC) cases and ten styrene butadiene rubber (SBR) cases in Texas as well as in at least 21 "Agent Orange" cases involving a herbicide or defoliant containing a toxic synthetic organic chemical known as 2,3,7,8 - tetrachloro dibenzo P-dioxin or TCDD or "dioxin". several of these lawsuits involve purported class actions.

Reserve:

It is our understanding that the assuredĂs $100,000 self insured retention prior to September 8, 1972 was not on an aggregate basis and that therefore this retention would apply to each occurrence. Under these circumstances we do not believe a reserve is required by the excess Reinsurers for their liability exposures prior to September, 1972. It does not appear to us that this assured has any remaining cases in the 1965 - 1972 period that might involve the reinsurersĂ layer.

The coverage written subsequent to September 8, 1972 appears to us not to involve exposure at the present time because of the quantum of the underlying aggregate layers. Therefore even though the assuredĂs self insured retention was on an aggregate basis after September 8, 1972 we do not believe a reserve is required at this time. This situation conceivably could change, however, in the event that this assured became a major defendant in the "exposure" products cases mentioned above.

Conclusion:

We wish to emphasise to the excess Reinsurers that the reserve calculations herein have been made only on the basis of the claims that have been brought to date against the various assureds. Thus while we are recommending only one manifestation or exposure reserve (Combustion Engineering) in this report, it should be clear that substantial reserves on other assureds will be required if additional asbestos-related bodily injury cases are filed. We refer particularly to Celotex and Pittsburgh Corning where the excess ReinsurersĂ involvement would appear imminent and other risks such as Armstrong Cork and Flintkote where the Reinsured could be exposed in the not too distant future.

There are other risks such as Raybestos Manhattan and General Dynamics which could prove dangerous depending upon the development of the law of employersĂ liability. And there are other assureds like Hooker Chemical and Uniroyal which could result in loss payments by the excess Reinsurers in the event liability is found for other "exposure" type situations such as Love Canal and Agent Orange, etc.

We will continue to monitor all of these various assureds and situations and will remain in close contact with the Reinsured. Meanwhile, we would suggest an expense reserve of $60,000 be established for the cost of this firm to be allocated over the twelve years at risk".

Mar 81

Dr. Irving G. Selikoff, Mount Sinai School of Medicine, noted at a recent conference on asbestos that over 13.2 million workers were exposed to asbestos between 1940 and 1980. Of this number, he noted that 9 million are still alive. He further estimated that there are presently 5,000 excess deaths from asbestos related lung cancer which will increase to 10,000 a year by the end of the century. At the same conference, the assistant corporation counsel for estimated that the average total costs, taking into account the contribution by all defendants, for each case disposed of in 1981 was approximately $70,000. In a recently released report, the New York Academy of Sciences has estimated that the social cost of death and disability from asbestos disease will range between 39 billion and 74 billion dollars over the next 25 years.

Mar 81

LloydĂs Newsletter No 1 detailing the Committee and Corporation of LloydĂs and the work of its Departments.

9 Mar 81

A Member of the House of Lords writes to an external Member of LloydĂs and states, inter alia, in relation to the formation of the Association of External Members of Lloyd (AEML):- "I thought, however, it might be useful if I put on paper my own views so far as I understand the issues. It seems to me there are two prime ones. Firstly, I donĂt think that LloydĂs should seek to protect themselves, not as individuals but as a corporation, from suits for damage for ineffective policing of their Rules, Company Law, or behaviour contrary to that stipulated in the Bill if it is ever enacted. Secondly, on the divorce of underwriting and broking firms, I donĂt think the ordinary layman has enough knowledge of the pros and cons to make a judgement and I am content to leave that judgement to knowledgeable outsiders such as Sir Henry Fisher".

9 Mar 81

Letter from LloydĂs UnderwritersĂ Non-Maine Association. Re: USA Hazardous Wastes, Pollution and Environmental Impairment Legislation. Underwriters should be aware of current and proposed legislation and regulations which will create liabilities to onshore facilities. These may impose new liabilities on, or increase existing liabilities of, a broad range of insureds or potential insureds and thereby may effect underwritersĂ existing direct and reinsurance exposures and future underwriting decisions....

In addition to liability for sudden and accidental pollution, emerging requirements to cover non-sudden and accidental i.e. gradual and unexpected, liabilities could affect Underwriters writing such environmental impairment cover on a direct basis by way of reinsurance ....

Statutory sources of liability: The Hazardous Waste Superfund Act: Underwriters interest in providing direct insurance or reinsurance or who may already through existing treaty arrangements provide coverage should be aware that the recently issued Superfund legislation will affect the liabilities to which a facility owner or operator may face and may affect the limits of liability facing an insurer under RCRA.

The Hazardous Waste Superfund Act may also completely alter the liabilities facing those managing the risks of hazardous wastes ... Briefly the ActĂs basic provisions are as follows:

  1. Retroactive liability (potentially strict, joint and several).
  2. The Act has only limited defences to liability available.
  3. Liability may be limited under certain conditions to ... (c) $50,000,000 plus removal costs for any other facility.
  4. Due to the direct action provisions of this Act insurers will need to assess their liabilities since they may not assert their policy defences when they become guarantors, and by providing evidence of financial responsibility may face unlimited liability under the terms of the Act.

Mar 81

Hammond -v- North American Asbestos Company, case No. 80-L-52. A Philadelphia jury awarded punitive damages in 14 cases, with the punitive damages typically around a third of the compensatory level.

81

Peter Chandler, Underwriter, of the Sedgwick Forbes (LloydĂs Underwriting Agents) managed Marine Syndicate 483 (115, 117)/INM 755 (116) states "in the 1978 account closing we made the first reinsurance provision and continued to develop reserves in respect of Asbestosis and Pollution in subsequent years."

Mar 81

LloydĂs Bill receives its 2nd reading in the House of Commons.

Mar 81

The major two day conference, arranged by City Financial Conference Services Ltd, discussed and reviewed the changes occurring in the London Market, the reasons behind them, and their effect upon the international scene, particular attention being paid to the subject of the future for LloydĂs. Mr R J Kiln, Committee Member of LloydĂs and Chairman of LloydĂs Audit (Solvency) Committee, gave a speech of which the theme was "Changing World Insurance Markets - London at Risk" and stated inter alia:

Until around 1976 all looked well in LloydĂs, we weathered the difficult times of 1974 better than many of our rivals. Most LloydĂs syndicates were well reserved for their outstanding liabilities, foreign Names were giving us an international capacity and many Names were coming forward to increase the marketĂs capacity. We were, therefore, in a position after 1974 to take advantage of the increase in business which developed and LloydĂs profits on the 1975, 1976 and 1977 accounts were at record levels. However, since 1976 two things have happened. Firstly, LloydĂs itself has suffered a number of set-backs which tended to be highlighted by the media out of all proportion to LloydĂs own achievements. I will not bore you with even mentioning the various problems we have had;

A free market cannot be regulated to the point that all loopholes are closed because if this were to be so it would cease to be free:

The second major change since 1975 has taken place in the capacity of the insurance market, not just in LloydĂs but world -wide. This increased capacity arises from the good underwriting results of the years 1975 and 1978 and it also arises from a period of high interest rates, allowing considerable investment and capital gain to be obtained from insurance funds. The result, as we all know, is that there is an over-capacity throughout the world in almost all insurance and reinsurance markets at the present time. In this situation there is obviously intense competition for business. The high interest rates are masking the technical underwriting losses which certainly are beginning to appear on the 1979 and 1980 accounts. Lastly, the effect of this competitive market is that both brokers and underwriters have spent considerable time in re-cycling existing business by way of retrocession upon retrocession. A false increase in the amount of business in reinsurance markets has been created solely by this re-cycling process;

Looking forward to 1981 and onwards, the picture is still one of over-capacity and increasing competition, with little prospect of a real growth in Premium Income to the market. This trend is likely to continue until either there is an upswing in the worldĂs economy, with an increase in business, or a contraction in world insurance markets, which will only happen when underwriting losses exceed investment gain. This is beginning to happen to certain companies and certain insurers throughout the world but so far only to a limited extent and it is masked by new premiums and long delays in loss advices and settlements. In trying to predict the future for the 1980Ăs, one has to consider whether the present cycle is any different from past cycles. Our business is cyclical - lows follow highs, the cycles vary in length and we are clearly into a trough and not yet , in my judgement, at the bottom of it. This trough is different from past troughs in these respects:-.* the present world reinsurance market is more substantial financially than in past troughs. A lot of major Life Companies, Governments, Industrial Giants and so on are backing Insurance and Reinsurance Companies. * there is still a lot of spare capacity in LloydĂs and elsewhere. These factors would seem to indicate that even if the crunch comes a substantial market will be waiting to pick up the pieces. However, there is a very serious contra position and that is the enormous increase in retrocession and retrosurance to which I referred earlier.

When a market depends upon collection of reinsurance recoveries to the third, fourth and fifth degree, not only are those reinsurance recoveries delayed in collection but they are subject to solvency risks en route. By this I mean that when the world-wide market becomes unprofitable some people will inevitably go to the wall, which will have a chain reaction. Secondly, the cash flow problem will create delays in payment of claims. In addition, in bad times the brokers themselves are very often subject to those same pressures; particularly so, as brokers today do hold substantial sums of clientsĂ money. Therefore, any insurance operation which is heavily dependent upon this retrosurance chain is likely to have a difficult time in the early 1980Ăs. To turn to LloydĂs position in all this, there is no doubt in my mind that most LloydĂs syndicates do have very substantial technical reserves or, as we call them, audit reserves, and that the calculation and realisation of the dangers of long tail business are better understood in LloydĂs than in many Companies, particularly as we have run-off statistics of all types of business going back over a generation. Also, because of the large number of new Names, who joined in the late 1970Ăs, most syndicates at LloydĂs are not writing to their capacity, so there is an in-built additional solvency margin. My fear is for those LloydĂs syndicates which may be unable to collect outwards reinsurance recoveries from reinsurers who are in difficulties, or who will have delays and difficulties in trying to so collect. Looking beyond the short term, the success of LloydĂs in a competitive world market, depends on the following factors:-

  1. The ability to keep people of high quality and integrity in the underwriting and broking field.
  2. The ability to remain innovative and creative.
  3. The freedom to trade with the minimum of regulation.
  4. Efficient administration and service.
  5. A low expense or cost ratio.
  6. A somewhat indefinable asset of a "market" image which leads to co-operation and;
  7. The passing of information and know-how for the common good of the whole market.

These seven factors have always been the strength and, in my opinion, the future of this market as well as the future of the London Market as a whole, depends upon them. Taking these points individually:-

  1. The quality and integrity of people is absolutely vital and there is no doubt that LloydĂs has seen a deterioration in integrity during recent years.
  2. The market has always produced a sufficient number of leaders in both the underwriting and broking fields who are innovators and creators of business. We must remain a place where the creative underwriter can make his fortune and we must find methods to reward those syndicates which take the time and effort to create new classes of business as opposed to others who sit on their bottoms and follow others.
  3. I quarrel with some aspects of Sir Henry FisherĂs report. I quote from the covering letter addressed to the Chairman of LloydĂs which starts the Fisher Report ... "Finally, all Members of the Working Party would wish to record two convictions. The first is that recent problems at LloydĂs should not be allowed to obscure the very great success which LloydĂs despite its antiquated constitution and the restricted powers of regulation over its community, has achieved over so many years and the high reputation in which it is held world-wide, particularly by members of the insurance industry", ... It is my belief that there is profound misconception that LloydĂs has achieved its success despite restricted powers of regulation over its community. On the contrary, LloydĂs has achieved its success over 300 years, and over the past 30 years, because of the lack of powers of regulation over its community. There is a very grave danger that if the new Council takes unto itself too much regulation to satisfy the consumer lobby, the MPĂs lobby, the external Names lobby or any other lobby, that this market will be regulated out of business. Freedom is essential for innovation and progress. The market must not accept control over underwriting from its new Council except where such control is necessary to protect the policyholder and, in rare instances, the market as a whole.
  4. If we are to prosper in the 1980Ăs, the LloydĂs market has got to improve its administration and services. Repeated remarks have been made by the Chairman of LloydĂs over the need to improve the quality of claims handling; we need to review the whole area of producing policies and the passage of money. In the long term I do not believe that we have really looked at the effect of the micro-chip on our business and this a vital necessity for the next few years. A market place of relatively small units can be at a disadvantage in administration and such matters as claims collection, compared to one single large insurer. One of the most disquieting trends in LloydĂs is the delay caused by a large number of syndicates on one policy with each syndicate exercising its right to agree everything, particularly on the claims side. Niggling over claims or delays in making settlements can do untold harm to a market and could turn business away from LloydĂs. Of course, it is very vital to the future of LloydĂs that all syndicates in all markets agree claims reasonably and settle quickly, having the staff of quality to do so and the liquid cash resources to do so before waiting for their own reinsurance collections.
  5. One of the most disquieting aspects from the marketĂs point of view is the increasing costs which the syndicates and the Names are having to bear. In many areas of large volume, small profit business, LloydĂs are now non-competitive compared to some of our competitors. Costs have risen due to increases in syndicate costs, to agency charges and to the escalation of charges on the market, both from the Corporation and other services. The new building at LloydĂs is going to add significantly to these costs in the 1980Ăs. It is up to the market to keep its own costs down and to complain constantly if the authorities increase theirs. The need may arise when part of the new building costs are funded other than by a direct charge on the market and we may have to look at the way charges are levied which, at the moment are calculated very much on the basis of premium income or premium limits. This means that the large volume, small profit, short tail business is discouraged and the long tail, large premium gambles are encouraged.
  6. During the early 1970Ăs the security of LloydĂs was significantly weakened by the recommendations of the Cromer Committee and the necessity to increase the marketĂs capacity. However, during the late 1970Ăs many steps were taken to increase the security of LloydĂs, including a significant enhancement of technical and audit reserves, particularly on long tail business, a revision of the ratio of deposits to premium income and of assets to premium income. Various other technical improvements have been made by successive Audit Committees and it is my belief that these steps have very much improved LloydĂs security. Of course, with difficult times ahead, I have no doubt that these improvements are necessary and will need continual improvement. As I said earlier, I am much more concerned regarding the technical reserving and thus the security of some parts of the world insurance and reinsurance markets outside LloydĂs.
  7. Before I finish, I think I must refer to some aspects of the Fisher Report. I have already referred to the dangers of over-regulation; in addition, in implementing the Fisher proposals, the market must bear in mind constantly the cost of these proposals, which were not mentioned by Fisher, but must be given serious consideration - they are already very considerable. We need to reach conclusions as quickly as possible on the Fisher recommendations and, in doing so, to bear in mind the dangers of over-regulation and the cost factors. The market, therefore, looks to the new Council to settle Fisher quickly without interfering in the marketĂs freedom to trade and underwrite as it sees fit for the benefit of the public and the Names.
  8. To sum up, provided LloydĂs recovers its verve, I see no reason why the prospects for LloydĂs and London during the 1980Ăs should be any less successful than our achievements in the past. I may not be here to see it but LloydĂs in the 1990Ăs could have 50,000 Members (of which nearly half would be overseas Members) and an income of ˙5,000m plus, and our profits could go to a new high of ˙250m in the mid 1980Ăs. Other speakers included

Peter Miller

Former Member

Committee of LloydĂs

David Palmer

Chief Executive

Willis Faber Ltd

David Rowland

Deputy Chairman

Stewart Wrightson

(LloydĂs had 28,770 Members by 1990, couldnĂt tempt 50,000).

81

At least one lawsuit has been filed on behalf of school-children. That case seeks to order the Philadelphia School District to establish a trust fund to pay potential claims brought by students who may develop an asbestos-related lung disease during the next 45 years as a result of exposure to asbestos in the cityĂs schools. Steigelman -v- School Districts of Philadelphia, United States District Court for the Eastern District of Pennsylvania, case No. 80-4729.

12 Mar 81

The Asbestos Litigation Reporter reported on the oral argument before the United States Court of Appeals for the First Circuit in Eagle Picher -v- Liberty Mutual et al.

13 Mar 81

The Asbestos Litigation Reporter published an article where it stated that a report mailed to stockholders of Johns-Manville, the principal defendant in most asbestosis suits, is running out of primary insurance for the period 1947 to 1976, resulting in qualified financial statements by J-MĂs auditors for 1979 and 1980 because the ultimate cost of asbestos litigation to J-M is unknown. The Asbestos Litigation Reporter also published the findings of Dr Irving SelikoffĂs recent study showing that asbestosis does not peak until 40 to 45 years after exposure.

13 Mar 81

Hardy -v- John-Manville Sales Corp., (Case No M-79-145-CA), filed in the District Court for the Eastern District of Texas. The court granted a motion permitting defendants in an asbestos case to file cross-complaints against their co-defendants alleging contribution of damages according to a concept of market-share apportionment, and granted a further motion permitting discovery to commence thereon.

16 Mar 81

Wall Street Journal: published an article stating that Raybestos-Manhattan will have a loss for 1980, which year includes asbestos-related claims going back to 1951. Raybestos-Manhattan would also have qualified statements for the 1978-1980 period for the same reason as Johns-Manville.

20 Mar 81

The motion of TravelerĂs Insurance Company seeking co-ordination of the four California Asbestos insurance coverage cases, supported by Underwriters, was granted.

24 Mar 81

Johns-Manville file their 1980 year-end accounts with the SEC.

Note 5 to the accounts is therefore reproduced in full below:

"The Company is a defendant or co-defendant in a substantial number of lawsuits brought by present or former insulation workers, shipyard workers, factory workers and other persons alleging damage to their health from exposure to dust from asbestos fibber or asbestos-containing products manufactured or sold by the Company and, in most cases, by certain other defendants. The majority of these claims allege that the Company and other defendants failed in their duty to warn of the hazards of inhalation of asbestos fibber and dust originating from asbestos-containing products. In the opinion of Management, the Company has substantial defences to these legal actions, resulting in part from prompt warnings of the possible hazards of exposure to asbestos fibber emitted from asbestos-containing insulation products following the 1964 publication of scientific studies linking pulmonary disease in insulation workers to asbestos exposure.

Also included in these legal actions are a number of cases brought by some of the CompanyĂs own employees and by employees of other manufacturing companies which use asbestos fibber in their operations. These suits typically allege that the Company and other defendants failed to warn of the hazards associated with the use of such fibber. In the opinion of Management, the Company has substantial defences to these legal actions including the fact that, with respect to employees of other manufacturing companies, it had no special knowledge not in the possession of the plaintiffsĂ employers which would give rise to a special duty on the part of the Company, and, with respect to the employees of the Company, that applicable workers compensation statutes provide appropriate defences to most such claims.

It is the CompanyĂs belief that the claims and lawsuits pending and which may arise in the future relate to events and conditions existing in prior years. More specifically, it is the CompanyĂs belief, based on the following factors and assumptions, that since at least prior to the period covered by these financial statements, no significant new potential liabilities have been created for the Company with respect to diseases known to be related to asbestos and arising from asbestos fibber and/or asbestos-containing products manufactured or sold by the Company.

  • That since the mid 1970Ăs, the Company has sold asbestos fibber in the United States only in pressure pack, block form or other similar condition and not in a loose form;
  • That by 1973, the Company had ceased domestic manufacture of thermal insulation products containing asbestos which are the products principally involved in disease claims made against the Company;
  • That the Occupational Safety and Health Administration (OSHA) established a maximum exposure standard for asbestos fibber of five fibres per cubic centimetre in 1972 and lowered that standard to two fibres per cubic centimetre in 1976. It is assumed that compliance with such standards in the work place was achieved within a reasonable time following such promulgation and is continuing to date; and
  • With respect to any use not complying with the OSHA asbestos standards, the CompanyĂs defensive posture with respect to claims arising out of such environments will be significantly enhanced.

As of December 31, 1980, the Company was a defendant or co-defendant in 5,087 asbestos health suits brought by approximately 9,300 individual plaintiffs. This represents a substantial increase from the 31 December 1979 level of 2,707 cases (brought by approximately 4,100 plaintiffs) and the 31 December 1978 level of 1,181 cases brought by approximately 1,500 plaintiffs). During 1979, the Company was named as a defendant in an average of 141 cases per month (brought by an average of 196 plaintiffs) as compared with an average of 65 cases per month (brought by an average of 83 plaintiffs) in 1978. During the first three quarters of 1980, the Company was named as a defendant in an average of 194 cases per month (brought by an average of 382 plaintiffs); this rate increased to an average of 304 cases per month (brought by an average of 403 plaintiffs) in the fourth quarter of 1980. During 1980, the Company disposed of 402 claims at an average disposition cost (excluding legal expenses) of $23,300, substantially all of which was paid by applicable insurance. This level of disposition cost represents a significant growth from the pre-1980 level of approximately $13,000 per claim. The growth in these two areas has significantly increased the uncertainties as to the future number of similar claims which the Company may receive, and the future disposition costs of the pending and future claims. Also during 1980, to resolve uncertainties as to the correct interpretation of a number of provisions in the various policies of insurance maintained by the Company and applicable to these claims, it was necessary for the Company to bring a declaratory judgement action to have such issues resolved by a court of law. While it continues to be the CompanyĂs opinion that its position with respect to these issues is sound and in accord with the weight of judicial precedents, any litigation involves uncertainties to some degree.

Because of the uncertainties associated with the asbestos/health litigation, and in spite of the substantial defences the Company believes it has with respect to these claims, the eventual outcome of the asbestos/health litigation cannot be predicted at this time and the ultimate liability of the Company after application of available insurance cannot be estimated with any degree of reliability. No reasonable estimate of loss can be made and no liability has been recorded in the financial statements. Liabilities, if any, relating to asbestos/health litigation will be recorded in accordance with generally accepted accounting principles when such amounts can be reasonably estimated. Depending on how and when these uncertainties are resolved, the cost to the Company could be substantial." Coopers & Lybrand, auditors of Johns Manville qualified their audit opinion on the companyĂs 1980 accounts, and specifically drew attention in their report to the change in circumstances which lead them to qualify their opinion; the audit report stated inter alia:

"As discussed in Note 5 to the consolidated financial statements, the Company is a defendant in a substantial and increased number of asbestos health legal actions. The ultimate liability resulting from these matters cannot presently be reasonably estimated. In our report dated 1 February 1980, our opinion on the CompanyĂs consolidated financial position as of 31 December 1979 was unqualified. However, because of the increased uncertainties that developed during 1980 with respect to these matters, our present opinion on the consolidated financial position as of 31 December 1979, as presented herein, is different from that expressed in our previous report."

24 Mar 81

London Market Circular issued by the Joint Carriers Liability Committee entitled "Comprehensive Environment Response, Compensation and Liability Act of 1980 (CERCLA), the Hazardous Waste Superfund Act".

Paragraph 2 states:

"The Act creates liability, which may be retrospective, for compensation, clean up, and emergency response for hazardous substances released into the environment and the clean up of inactive hazardous waste disposal sites. It does not cover oil spills".

Paragraph 5 states:

"A copy of a notice by LloydĂs UnderwritersĂ Non-Marine Association on the 9 March 1981 is attached for the information".

Paragraph 7 states:

"Underwriters will note that the retroactive effect of the legislation may lead to claims on policies current at the time of manifestation of the pollution, though the cause thereof originated prior to the attachment of the risk. Especially when only a small primary policy exists, excess and excess of loss underwriters could be heavily exposed and there could be aggregation of claims with general liability coverage".

26 Mar 81

The Asbestos Litigation Reporter reported on the oral argument before the United States Court of Appeals for the First Circuit in Eagle Picher -v- Liberty Mutual et al.

26 Mar 81

Meeting of the Asbestos Working Party: Notes taken by Elborne Mitchell when discussing certain matters with their clients Present, inter alia, CJ Ayliffe, RAG Jackson. 73 underwriters have attended Elborne MitchellĂs office in response to the chairmanĂs letter dated 10th February 1981. Working party objectives: ....

(i)

the working party will endeavour to provide the market with appropriate information. ...

(j)

the leading underwriters, with the assistance of Elborne Mitchell acting for the working party, shall seek to create a data bank of all relevant information.

Mar 81

A ˙40,000 xs ˙10,000 run-off reinsurance placed for S R Merrett, Underwriter of the Merrett Marine Syndicate 418, 422/417 and R A G Jackson, Underwriter of the Merrett Non-Marine Syndicate 799, 772/1, 943. Outhwaite wrote a line. This was originally defined as a run-off reinsurance, but has since been redefined as a casualty excess of loss.

Mar 81

In Cleveland, punitive damages of $500,000 were awarded in addition to $350,000 in compensatory damages, in the death of a 61 year old insulation worker.

Mar 81

Johns-Manville has commenced an action in San Francisco Superior Court against Marsh MacLennan alleging that, Marsh MacLennan, as its broker, breached the fiduciary obligations by refusing to help Johns-Manville secure full insurance coverage without gaps or inconsistencies. The action is based upon the allegations of various Johns-Manville insurers in the Johns-Manville -v- Home litigation, including UnderwritersĂ contentions that the London policies for certain years were written on a per occurrence basis without any aggregate, and the affirmative defences of concealment and nondisclosure of the risks of asbestos.

Malcolm Roscow recently met in San Francisco with the claim committee of the asbestos working party, i.e. Messrs. Tayler, Ayliffe and Rayment and their claims attorney in connection with the preparation of a complaint in intervention which will be filed in the action of Johns-Manville -v- Marsh MacLennan. It was agreed that the claims attorney would represent the market since there was no declaratory judgement action involved, and no dispute within the market on that issue.

Mar 81

At a recent conference on asbestos, Dr. Irving G Selikoff, Mount Sinai School of Medicine, noted that over 13.2 million workers were exposed to asbestos between 1940 and 1980. Of that number, he noted that 9 million are still alive. He further estimated that there are presently 5,000 excess deaths from asbestos related lung cancer which will increase to 10,000 a year by the end of the century. At the same conference, the assistant corporation counsel for Johns-Manville estimated that the average costs, taking into account the contribution by all defendants, for each case disposed of in 1981 was approximately $70,000. In a recently released report, the New York Academy of Sciences has estimated that the social cost of death and disability from asbestos disease will range between 39 billion and 74 billion dollars over the next 25 years.

Apr 81

LloydĂs Newsletter No 2 entitled "The Corporation of LloydĂs Part Two", detailing the Market Associations, Underwriting AgentsĂ and BrokersĂ Associations, and subsidiary companies; and the work of the various market associations and subsidiary companies concluded from LloydĂs Newsletter No. 1.

Apr 81

The Defence Research Institute is presenting a -three day seminar on the insurance and claims aspects of the asbestos problem. Attorney Malcolm Roscow of Standard, Weisberg, Heckerling & Roscow has been invited and will share the platform with the attorneys for Keene and Liberty Mutual insofar as the insurance problem is concerned. The claims aspects will be handled by many attorneys and doctors from all over the United States. Standard, Weisberg, Heckerling & Roscow recommend that London be represented at the meetings.

5 Apr 81

Porter -v- American Optical Corp., affirmed and revised in part, 641 F.2d 1128 , 5th Circuit, cert. denied, 454 U.S. 1109 (December 7, 1981), rehearing denied, 455 U.S. 1009 (March 8, 1982): Court of Appeals for the Fifth Circuit reversed District CourtĂs application of the manifestation trigger of coverage and applied the exposure trigger for asbestos bodily injury claims. Court expressly concurred with the 6th Circuit Forty-Eight Insulations decision and held that insurance liability would be prorated among all insurers on risk during exposure period. The insured was held strictly liable under Louisiana products liability law for the manufacture of a respirator that did not protect worker from asbestos. The manufacturer had supplied such respirators to the company since 1953.

8 Apr 81

Porter -v- American Optical Corp., Case No. 78-1953 U.S. District Court Eastern District of Los Angeles. Affirmed and revised in part, 641 F.2d 1128, 5th Circuit 8 April 1981. Cert. denied, 454 U.S. 1109, 7 December 1981. Rehearing denied, 455 U.S. 1009, 8 March 1982. Judgement given that the insured should collect on an Exposure basis. The insured firm basically had cover only during the period in which they had marketed the harmful asbestos products. Their insurers pleaded the manifestation theory, i.e. they took the view that they were not affected. The courts decided against the insurer and defined the term "occurrence" according to the exposure theory. Court of Appeals for the Fifth Circuit reversed District CourtĂs application of the manifestation trigger of coverage and applied the exposure trigger for asbestos bodily injury claims. Court expressly concurred with the 6th Circuit Forty-Eight Insulations decision and held that insurance liability would be prorated among all insurers on risk during exposure period. The insured was held strictly liable under Louisiana products liability law for the manufacture of a respirator that did not protect worker from asbestos. The manufacturer had supplied such respirators to the company since 1953.

Apr 81

Johns-Manville Litigation. The LloydĂs syndicates for which H R Rokeby-Johnson spoke. Syndicates Subscribing Certain Policies issued to Plaintiffs and which Subscribe either to the "Exposure Position" or the "Manifestation Theory". [This examples the "muddled approach" involving opposing factions within the LloydĂs Market, see Appendix 1].

13 Apr 81

Meeting of the Asbestos Working Party: Notes taken by Elborne Mitchell. Present, inter alia, CJ Ayliffe, RAG Jackson.

  1. Elborne Mitchell notes on meeting 30 March 1981 were accepted as being a fair reflection of the meeting....

Pittsburgh-Corning is being sued by 9,000 claimants and is a larger problem than previously realised. First layer insurances are now exhausted - above them is the Home and above the Home are London Underwriters.

(Then a reference to the data bank which was to be set up).

Total estimates to set up [the data bank] is $280,000 but the running costs are presently unknown.

Alexander Grant have been told that the system must be working by October 1981 to supply information to underwriters on which to base their reserves......

The 5th Circuit of U.S. Court of Appeals has reversed the Judgment in Porter -v- American Optical and applied the exposure theory of assigning liability. The Court agreed with the reasoning of the 6th Circuit in INA -v- Forty Eighty Insulations.

81

Moran -v- Johns-Manville Sales Corp. (Case No. C-79-345) United States District Court for the Northern District of Ohio. Punitive damages were awarded in the amount of $500,000.

81

Johns-Manville Products Corp. -v- Superior Court of the State of California, County of Contra Costa, sub. nom. Rebe Rudkin -v- Johns-Manville Products Corp. (Case No. 27 Cal. 3d 465 1980). In addition to punitive damage awards, the court permitted a cause of action for the alleged fraudulent concealment of known dangers.

Apr 81

Hammond decisions: In the first award, an Illinois jury in Bloomington added $375,000 in punitive damages to a $125,000 compensatory damage award against UNARCO Industries, to the spouse of an asbestos worker in a law suit based on loss of consortium. This appears to be the first award of punitive damages in an asbestos suit and, if indicative of a trend, greatly increases potential liabilities of companies and their insurers.

Apr 81

Letter from Attorneys to the insurers at interest. This will supplement our report of ... Recapitulation of Evidex Project - Celotex claims review ... Our second step was to review individual claims files at the assureds corporate headquarters in Tampa. This was a project of extreme difficulty, as the assured had no internal system or records that we could utilise ... This hurdle overcome, we assembled a team of paralegals who under our supervision reviewed the 4,500 individual claims files of the assured, some of which contained hundreds of claimants. We have always realised that to manage this mass of data would require technical support services in the form of a data processing company. With this in mind, we consulted with and ultimately retained the services of the Evidex Corporation.... We understand that the entire London market is considering a consolidated claims review process which would encompass all London Insureds. We have discussed this desire with Evidex. Recommended reserves: We understand that underwriters generally desire that a value of $125,000 be assigned to each pending asbestos claim, and that a proportion of 8%, or $10,000, be generally assigned to as the Celotex portion thereof ... We recommend that underwriters periodically consider the adequacy of the $125,000 figure. $125,000 may well be a reasonable figure to assign to the predicted average settlement in calendar year 1981 it is probably not an accurate prediction as to the ultimate settlement value of all presently pending asbestos claims as it does not reflect inflation or the increasing settlement value borne out by experience.... Our recommended reserves have been tentative and based on our belief that the sheer volume of claims makes it very possible that underwriters may face liability, no matter what the specific terms of policies are and no matter what theory of coverage is eventually opted for by the Courts. Our belief in this regard was strengthened by the fact that the terms, conditions, and even the existence of underlying policies is at issue in the Celotex Declaratory Action... As with the manifestation analysis it should be remembered that these calculations do not allow for new claims, for the possibility of underlying exhaustion by a single claim, for the fact that underwriters may desire a reserve based upon a $10,000 rather than a $9,048 Celotex contribution for each case, or for underlying impairment by non-asbestos claims. Again, we believe that precautionary reserves should be set for all families, notwithstanding that statistically it is possible to demonstrate "no expense" for every policy period. Keene decision: As underwriters are no doubt aware, the United States District Court for the District of Columbia has recently issued its ruling in the Keene litigation. Basically, the Court followed the Forty Eight InsulationĂs decision and decided in favour of the exposure position.... Importantly, the Court in Keene extended this finding and its decision to Mesothelioma and Bronchial Carcinoma as well as to asbestosis. The Court went on to find that a pro rata obligation to defend and indemnify exists for each insurer on risk during the exposure period. For those periods during which Keene was uninsured, it stands in the same position as do its insurers... Appeals are presently underway

Related developments:

  1. Asbestos in public schools. The Environmental Protection Agency has recently found that asbestos poses an "Unreasonable risk of injury" to school children and school employees. This creates of course an additional potential Plaintiff pool of many millions. Possibly more important are the potential property damage claims by school districts based upon the necessity for retrofitting non-asbestos products in order to make school buildings once again "safe".
  2. Forty Eight Insulations Appeal. The 6th Circuit Court of Appeals has denied a request for an open hearing on its decision in the Forty Eight Insulations case and has also extended its prior ruling to encompass Mesothelioma and bronchogenic Carcinoma. As initially announced the ruling affected only asbestosis claims.
  3. Van Buskirk litigation: One of the Defendants in this Philadelphia litigation is the assured, notwithstanding that some, if not all of the Plaintiffs where former Philip Carey employees. The Court has held that since Carey was an asbestos manufacturer, as well as the Plaintiffs employer, it is not entitled to workmenĂs compensation immunity. Should this ruling become law elsewhere, there could be a significant impact on the coverage provided by underwriters, as employersĂ liability provisions of insurance policies would then take on a much more significant involvement than has heretofore been the case.
  4. New Jersey Asbestos Workers Settlement. Underwriters are aware that the claims of 890 asbestos workers in New Jersey were recently settled by the establishment of a $9.4 million fund. The average per claimant settlement was $13,500, far below the current national average. It remains to be seen whether "fund" settlement at low levels will become a trend, or whether this is an isolated incident.
  5. Hammond decisions. An Illinois jury has recently awarded $500,000, $375,000 of that punitive, to the spouse of an asbestos worker in a law suit based on loss of consortium. This appears to be the first award of punitive damages in an asbestos suit and, if indicative of a trend, greatly increases potential liabilities of companies and their insurers.

Apr 81

Dayton Independent School District -v- National Gypsum Co., No. B-81-293-CA, Eastern .District of Texas, April 1981. Suit filed on behalf of eighty-three Texas school districts seeking recovery of the cost of removing asbestos from some 600 schools. Suit filed by the various Texas school districts was dismissed after the parties settled. However, District Court decided the liability of the manufacturerĂs insurer. Court of Appeals for the Fifth Circuit reversed the finding of liability on the insurer, holding that there was no basis of jurisdiction. Fifth Circuit Court of Appeals held the District Court applied general rules of construction favouring the insured without first applying the substantive decisional law of any specific jurisdiction. District CourtĂs decision was reversed.

17 Apr 81

Letter from Anthony M. Lanzone to KF Alder (Underwriting Agency). Attention Ted Nelson. Encloses a copy of the recent proposal authored by the American Re. considering the asbestos claims handling procedures. The enclosure headed "asbestos claims handling procedure" sets as its objective: formulation of a procedure for the unified control of evaluation, negotiation and litigation management by the insurance industry. It envisages "form a national asbestos litigation committee."... "Why is such an elaborate and unprecedented organisation required"

  1. Asbestos litigation is the largest phenomena that has ever hit the casualty insurance industry. The present mechanism is not capable of handling it effectively.
  2. Asbestos litigation is going to get much worse. No one knows how bad the problem will ultimately become.
  3. Even some prominent members of the bar have stated the waste in defence cost because of the lack of uniform Co-ordinated approach is scandalous. This problem will only get worse as time goes by.

Apr 81

As at April 1981 an attorneyĂs report referred to asbestos in public schools and added that this creates an additional potential plaintiff pool of many millions. Possibly more important are the potential property damage claims by school districts in order to make school buildings once again "safe". The same report stated that an Illinois jury has recently awarded $500,000, $375,000 of that punitive, to the spouse of an asbestos worker in a law suit based on loss of consortium. This appears to be the first award of punitive damages in an asbestos suit and, if indicative of a trend, greatly increases the potential liabilities of companies and their insurers.

Apr 81

Letter from Attorneys to the interested insurers. Report No .... Assured: ...

This report will concern not only the asbestos, PVC, SBR and Pesticide cases but will also report on the Agent Orange claims and a new unspecified chemical exposure claim which have been filed since our last report. Because of new coverage information we are now recommending a substantial reduction in the exposure reserves previously suggested.... It thus appears at thus point that the exposure theory as opposed to the "manifestation" theory will probably prevail in the American Court system in the asbestos cases. This resolution could turn out to be unfavourable to the excess underwriters at risk here in the 1952-196? years. Nevertheless, it would still appear evident that the adoption of the "exposure" theory would not negate application of the assureds per occurrence self-insured retention (SIR)... American Courts to our knowledge have not as yet been presented with the issue of interpreting a per occurrence SIR under "exposure" theory of coverage.... The rule that ultimately will prevail in the American Court system cannot now be predicted and therefore we recommend herein a conservative approach which accepts the applicability of one SIR for the first year of alleged exposure....

  1. Agent Orange claims: We are led to believe that Excess Insurers here, through their interests in other assureds, are generally familiar with the nature of the claims arising from usage by the United States armed forces in Vietnam of the chemical defoliant designated as "Agent Orange"... Claimants here are the service men who were exposed to Agent Orange and their children. They allege that exposure to this herbicide caused cancer or so damaged the veterans reproductive system that they fathered children suffering from birth defects... At the present time over 150 law suits involving in excess of 3,400 individual claimants have been consolidated before the United States District Court for the Eastern District of New York on Long Island.

20 Apr 81

Lord, Bissell & Brook report to Underwriters at Interest. Re: ...

There have been hundreds of new cases. Underwriters involvement may be greater than initially believed.

24 Apr 81

Johns Manville litigation

Johns-Manville ("J-M") were manufacturers of asbestos products and in 1980 when the litigation commenced faced over 1,000 lawsuits with more expected. There was no attempt in the pleadings to put a figure on the sum claimed, but it was said that in 1980 in San Francisco alone the liability was several million dollars and. that they had already paid out over $800,000 in excess of settlement by their current insurers. Lloyds had insured J-M from 1947 to 1963 and again in 1978 and 1979. There were two lists of affected Lloyds Syndicates, one of those which subscribed to the ŠexposureĂ theory, and one of those which subscribed to the ŠmanifestationĂ theory.

Rokeby-Johnson was the Underwriter through whom the Lawyers of the ŠexposureĂ Syndicates obtained their instructions on behalf of the Lloyds market. Documents were filed by him on behalf of Underwriters on 9 December 1980, 22 December 1980 and 24 April 1981.

28 Apr 81

Victor B Levitt, Managing Partner of Long & Levitt of California and Chairman of the Professional Liability Committee of the General Practice Section of the American Bar Association, gives a talk at the invitation of LloydĂs Under 30Ăs Non-Marine Claims Committee entitled: " Recent Developments in Insurance Coverage of Asbestosis, Agent Orange, D.E.S., Radiation Hazards and similar Catastrophic Product Liability Developments".

Recently the American Insurance Association stated that as of 1 February 1981, 25,000 individual Plaintiffs have sued for asbestosis (with 500 additional suits each month); losses and adjustment expenses from these suits alone in 1980 are costing $1.35 billion per year compared with $6.35 billion paid in liability premiums (excluding medical malpractice premiums).

A recent article stated that Johns-Manville, the principal Defendant in most asbestosis suits, is running out of primary insurance for the period 1947- 1976, resulting in qualified financial statements by JMĂs auditors for 1979 and 1980 because the ultimate cost of asbestos litigation to JM is unknown.

And this phenomenon is not peculiar to JM. The Wall Street Journal states that Raybestos-Manhattan would also have qualified financial statements for the 1978 - 1980 period for the same reason. .... And I suspect this may only be the tip of the iceberg. Reputable insurance brokers are saying that the staggering size of toxic latent disease claims, of which asbestosis is only the first, could threaten the solvency of some insurance companies.

Latency 15-45 years.

Another problem, inherent in this entire discussion, is that there are absolutely no reliable cost estimates because often it can take from 15 to 45 years after initial exposure to a toxic substance for manifestation of injury to occur. For example, a recent scientific study by Dr Irving Selikoff, considered the dean of medical knowledge as far as asbestosis claims are concerned, stated that the incidence of asbestosis peaked in workers exposed to asbestos 40 to 45 years after first exposure.

(145c) SelikoffĂs study 40-45 years peak, putting a very great financial burden on many insurers if the exposure theory is accepted. A recent California case indicates that Insurance Company of North America alone has potential exposure of $20 billion.

(145d) This same case states that the Court is bound to broadly construe the insurance policies to promote coverage in favour of the insured and against the insurer.

(145g) Two recent cases where the employee and his family not confined to claims for WorkerĂs Compensation. The recent New Jersey settlements.

It has been reported that a recent settlement in the New Jersey Federal District Court of a consolidated action against a number of defendants, including Johns-Manville, involving 680 workers at a Raybestos - Manhattan Inc. plant in New Jersey involved establishment of a $4.9 million fund with respect to asbestos claims. The trial judge estimated this settlement could save 10 years of trial and that the settlement may set a pattern in toxic substance mass litigation.

Reference is also made to a 1978 settlement in Tyler, Texas, of a $20 million fund for 445 asbestos workers.

A contrary opinion has also been expressed on these recent settlements that such settlements may encourage more suits....

I predict that there will be many more claims than we can possibly anticipate from toxic substances, that such claims will often take many years to manifest themselves, and that the dollars involved will be far greater than we can possibly imagine.

0 May 81

LloydĂs Log: International Reinsurance: a post "Betsy" review ű E E Nelson

Extracts from a paper deiivered to a recent international reinsurance seminar in Edinburgh. Mr Nelson is a leading non-marine underwriter and his comments therefore reflect the substantial amount of foreign business written in London, particularly emanating from the United States and Canadian markets.

Nineteen sixty-eight reflected the aftermath of the 1965 disasters, which included Hurricane Betsy. A substantial re-think of underwriting attitudes prevailed throughout the insurance industry, and we embarked on five years of successful underwriting. Many company markets had withdrawn their support and the ability of LloydĂs underwriters to participate in the more attractive business offered was restricted by a reduction in the number of underwriting members overall, and a reluctance on the part of existing Names to increase their limits. In some cases, company competitors were obliged to substantially reduce their premium capacity by security restrictions imposed by Government solvency margin requirements. The inevitable reaction followed and by 1974, competition was again apparent, and a race for new business became the order of the day.

The collapse of the international stock markets in 1974 and 1975, and the demise of the property boom coinciding as they did, with a level of inflation never before seen in many countries of the world, was a recipe for disaster. The reinsurance industry shared the problems with the direct writers. Restriction in capacity, coupled with the demand for insurance on inflated values, and the necessity to finance premium income at the higher rate levels for solvency margin purposes, began the "happy time" for insurers and reinsurers alike.

The recovery in 1 976 was rapid, with rates increasing sharply on most classes of business. An adjustment to the new level of oil prices allowed industry to return to its normal level. As a direct result, 1977 and 1978 produced two of the best underwriting years for a long time, with a recovery of the stock markets, and a sharply increased return on investment income. Again, the cycle turned in 1979 and we are back to the era of intense competition, which in many cases, is both unjustifiable and unwarranted.

The development of the international reinsurance market

It would not be an exaggeration to describe the growth of the reinsurance market over the last decade as "explosive". The more attractive terms on offer in the late 1960s encouraged new reinsurance markets to develop and existing markets to expand in all parts of the world. Many companies for the first time created reinsurance departments or further developed those which had hitherto operated on a small scale. The captive insurance market in Bermuda began to make progress, and following the tax rulings given by the American Inland Revenue Service, were attracted to writing additional business on an "arms length" basis, for which reinsurance contracts, with their large block premiums, were particularly suitable and then of course the New York Insurance Exchange opened its doors in 1980. LloydĂs underwriters embarked on one of their fastest periods of growth during the second half of the 1970s, which continued unchecked until the end of the decade. A rash of new syndicates appeared on the scene, seeking opportunities in all sections of the market.

Today we have a market of truly international character, including the Eastern Bloc countries. and extending into uncharted territory in the Middle East and China. Sophisticated communications have made it possible for exchanges of information, documentation and accounting to be virtually instantaneous. From the point of view of a LloydĂs underwriter, this has made a wider market available to both write and place reinsurance business. The political barriers are gradually being reduced and we now have freedom of reinsurance within the EEC and the removal of exchange controls as far as the UK is concerned.

The picture today

The picture we see today is one of substantial and increasing underwriting losses being reported by companies almost without exception, subsidised by what is an historically high level of investment earnings. Underwriting results which on their own could only be described as appalling, are accepted by management because the "bottom line" provides them with the profit for the shareholders and the contribution to surplus. which enables them to finance their growth. Claims costs are rising steadily with the impact of high levels of inflation. Expense costs incurred by the industry are worrying, since they are often increasing at a time when premium income is static, due to competition and the international recession freely acknowledged by the Western world. There is no lack of opportunity to identify some of the problems which will face the reinsurance industry over the next 10 years.

The impact of inflation

For insurers and reinsurers alike, inflation is of vital interest from two points of view. Financial inflation which is of a political nature, and outside the control of the industry, is the most important. the Western economies have been grappling with this problem, most unsuccessfully, for the last 10 years, and appear to be almost powerless to bring it down to the single figure level, which they consider to be acceptable. The second aspect of inflation for insurance purposes, is imposed by changing social conditions, and the subsequent attitude of the courts or other adjudicators to insured or injured third parties. This is painfully obvious in an area such as productsĂ liability where "privity of contract" and "onus of proof" by the plaintiff has been virtually replaced by "warranty of fitnessĂ and "duty to warn" obligation. The responsibility to show he was not negligent has now devolved principally upon the manufacturer or distributor. In those countries where unlimited free medical treatment and compensation for loss of income as a legal right is not available to everybody, there is little doubt that the injured party will recover regardless of negligence. Case law built up over a century or more of court decisions, has been swept aside in favour of the injured parties. The activity of consumer organisations and the PlaintiffsĂ Bar in the USA have changed the rules of the game, and insurers must respond to the new environment.

In the property area, the "insurance to value" requirements and the introduction of average clauses in all classes of business, including personal lines, has gone a long way to keeping sums insured in line with inflation. Reinsurers, particularly on an excess of loss basis, must always be aware of the limitations of a fixed deductible, and this is plainly apparent in catastrophe reinsurance. The value of a fixed deductible is eroded by a factor between 10% and 15% per annum and anybody renewing "as expiring" because of a clean loss record, must realise he is effectively reducing the rate by over 10%.

An example of the impact of social inflation in the property account is adequately illustrated by the "Coastal Pools" legislation introduced in the early 1970s by the US Federal Government. This legislation requires all licensed insurers to participate in beach front and coastal substandard insurances in proportion to their share of standard business. These pools are now operational in a number of the south-eastern states of the USA. The Florida and Texas pools have total sums insured of $2,000m each. The small Alabama pool suffered a 70% loss in hurricane Frederic in 1979 and begs the question as to how much it would cost in Texas and Florida from this source alone? We must await the event before finding the answer, but one thing is certain, namely, the majority of the additional loss will fall on excess loss reinsurers.

We might have been tempted 10 years ago to suggest that the UK and Europe were not areas exposed to catastrophic losses. Today we talk of weather patterns covering thousands of square miles where, by way of definition, catastrophes are occurring regularly. We have standby precautions in case the Thames floods central London. Who would have forecast the total insured damage that would be suffered at Darwin in December of 1974? It may be that the impact of inflation of both sorts is responsible, with insurers covering ever increasing values, and being required to cover perils such as flood, under political pressure, which they would not normally have considered prudent.

In the field of casualty, the impact is commensurately greater. The life of a severe injury claim is between six and eight years, and during this period, inflation can double the settlement value. Alternatively, it will halve the value of a fixed deductible in real terms. If one is dealing with injuries suffered by a minor, any statute of limitations would not normally apply, and the injured party would have full legal rights at the time he or she reached majority. It is impossible to reasonably predict the effects of inflation over this period of time. A court or arbitrator will assess damage on values at the time of judgement, and will include an assessment for the effect of further inflation on future costs. An insurer, and/or reinsurer, must respond. Considerable headway was made by the introduction of indexed deductibles in the USA in the mid 1970s which were of considerable benefit to reinsurers. Indexation, of course, has been common in Europe for many years, but has never been readily accepted in other parts of the world. In these more competitive days, the initiative is under pressure, but the dangers of a fixed deductible remain as formidable as ever.

Any reinsurer calculating excess of loss rates without allowing for the impact of double digit inflation is certain to regret the mistake! The difficulty when negotiating on such contracts is to persuade prospective reinsureds of the logicality of the arguments, assuming in the first instance that he is even willing to listen, which itself cannot be guaranteed in a competitive atmosphere. Any rate on casualty business, excess of a fixed deductible, will appear in the first instance, to be exorbitant, if the reinsurer is solely to bear the inflation risk. By the time the last claim has been finally settled, a very different picture will inevitably have emerged, and it is usually the reinsurer who regrets the experience.

Can we return to the logicality of indexed deductibles over the next 10 years? I fear not, unless the pressures fuelling competition drastically abate, and interest rates fall in line to a more normal pattern. Ignoring the impact of inflation on this class of business, can only lead to disaster. Reinsurers will eventually learn of their mistakes, and reinsureds may well find themselves with security unable to respond to the final cost of the claim. It may well be that both will end up the loser.

Investment earnings

When I first came to LloydĂs some 30 years ago, investment earnings were considered so unimportant that some of the more conservative syndicates were content to leave the money on bank deposit, with a rate of return which today would be considered derisory. The impact of investment earnings on the industry is a very different story at this time, since it has become the most important ingredient to profitability. The UK has now accepted double digit interest rates as standard, and the US market has probably to adapt to the same situation. Whatever else may be said on the subject, insurance companies have inevitably to accept the "bottom line" principle, which basically means a nil or even minus return from underwriting, provided investment earnings cover underwriting losses, if any, and in addition, dividends to shareholders plus the necessary finance to keep the companiesĂ growth in line with government solvency margins. What we are seeing today is a new phenomenon, where interest rates in the USA are higher than those prevailing in the UK. During 1980, American interest rates have exceeded 20% for a short period and after a few months of decline, stand at 21% in December. When one considers that over the past 10 years an historical average of between 7% and 8% prevailed, the profound effect on underwriting attitudes cannot be denied. Perhaps it is even more significant to appreciate that it is possible to invest US dollars today, with first class security for a guaranteed return in the area of 15% per annum firm for the next five years.

The conclusion to the writer is clear, namely, that whilst this situation persists, we are in for a period of continuous deficit underwriting. The third quarter results for 1980 for both American and European companies are showing combined loss ratios well in excess of 100% which, in the absence of the present level of interest rates, would have meant an immediate reaction to improve rate levels generally, and a tightening up of underwriting attitudes. It is now taken in its stride, because other income is covering the deficit and leaving an acceptable margin. The rule of thumb today is that an underwriting ratio of 105% is bearable. We must, however, accept that the level of interest rates are not within the control of the insurance industry, and they can fall sharply as experience has shown. Inflation will inevitably increase claims and expense costs and the present world recession is holding back premium growth. If the level of interest rates should fall unexpectedly during this period, the industry will be left stranded, with underwriting and expense losses which are not covered by investment income. As happened in the mid 1970s, the first item which will suffer is the solvency margin and a subsequent increase in the security risk.

The general non-life account can be broken down into two distinct parts, namely, those classes of business where claims are normally paid within a short period of time (for example, property) against those classes where the claims take many years to mature (casualty). It is obvious that when the industry is relying heavily on investment income, the attraction of the latter outweighs the former. There is ample evidence that the extreme levels of competition are more severe in the casualty area, bringing as it does, the danger of the effects of inflation when claims come to maturity. Insurers and reinsurers alike, in years gone by, have failed to charge sufficient rates to meet the eventual cost of these claims and the related expense. The higher the investment earnings reach, the more exposed those involved will become. What will happen when interest rates eventually fall? The earnings from this source will decline quickly, but claims and expense costs will continue to rise with the going rate of inflation, leaving insurers in a position where they cannot protect themselves.

Whilst it would be true to say that the reinsurance industry has the same opportunity for investment return, this is always contingent upon the premium flow being maintained in the normal way. Unfortunately, experience shows that at times of high interest rates, reinsurance funds are subject to delay, and the conclusions are inescapable. When the original writers are relying so heavily on investment return, it is not unnatural for them to keep more of their business, and cede less to reinsurers. This has become particularly noticeable during 1980 in the surplus and quota share field, where working excess of loss covers have been utilised to a far greater extent than before and at the expense of sharing treaties. This will inevitably reduce the funds flowing to reinsurers, who will obviously lose investment advantage. When business is so competitive, and underwriting margins of profit have virtually disappeared. the reinsurers normally suffer more than the direct companies.

Asbestosis

Any review of the next ten years would be inadequate without a reference to claims. The writer believes that the impact of asbestosis losses will be substantial during the decade and beyond and is worthy of particular mention. The situation provides a good example of the difficulties facing all those involved in casualty business, and the impossibility of scientifically forecasting the effects of inflation and investment earnings when rating this, and similar typos, of business.

Mineral fibres inhaled by industrial workers and others are now known to be responsible for pulmonary lung disease. Severity depends upon the personĂs bodily health, influenced by the amount of the fibres inhaled and the period of exposure. In recent years, the dangers have been recognised, and productsĂ liability claims are being made against manufacturers in the USA, Canada and elsewhere, for failure to warn of the inherent dangers involved. Litigation is under way to decide whether such claims, if they are justified, should fall on the insurers carrying the risk at the time the fibres were inhaled, or whether it should be those on risk when the injuries become manifest. A dozen or more declaratory relief actions are now being pursued n the USA to rule on this issue.

At the time of writing, one can reasonably conclude that the courts are more in favour of the exposure theory, meaning that insurers and reinsurers who were on risk from the mid 1940s onwards, and over a period of 30 years, will be held responsible, although it would be correct to state that this is not necessarily the final decision. The amount of damage and provision for medical costs will be decided by the courts at the time of judgement, and must bear the full impact of many years of inflation. Subject always to the policy limits, the productsĂ liability insurer must bear the present day costs and their reinsurers will be called upon to respond accordingly. There are currently reported 6,000 individual claims in litigation in the USA alone, and unknown numbers in Canada and other parts of the world. Individual damages, if liability is established, will be substantial, and defence costs will add to the total. One need only think of a reinsurance excess of a fixed deductible to realise the dangers involved. No amount of investment earnings is going to compensate for this loss. We must expect that situations similar to asbestosis will always be a burden which the insurance market will have to bear, and todayĂs underwriters should be prepared to learn from lessons of the past.

A further example of the impact of social inflation is the litigation and court decisions following the use of the drug "DES". Some 20 years ago, the drug was taken by women during pregnancy and has resulted in injury to female children, becoming apparent when reaching puberty. The product was manufactured by a dozen or more companies. Many of the plaintiffs were unable to identify the particular manufacturer, since records were not always available. They proceeded on the "enterprise" theory, using the argument that specific identification was not necessary, and the industry must collectively respond, with the responsibility for damages allocated pro-rata over those manufacturing the particular product. The argument has been supported by some important jurisdictions, and is already setting the pattern for this and other similar situations. Perhaps we have a perfect example of the impact of social inflation which has added to it financial inflation, from losses which occurred many years ago. The reinsurance industry again, will undoubtedly be carrying a major part of this particular burden.

Security

Whenever a group of underwriters get together, the one subject which is inevitably raised, is the question of security. Can the reinsurance industry meet its obligations, regardless of the amounts involved and whenever the event occurs? The answer, unfortunately, is not an unqualified "yes". It is not possible in the insurance business to avoid the financial risks involved, both in writing reinsurance of other companies and placing business with them, and it is interesting to note that a part of this conference has been allocated to the problem specifically.

The writer has already commented on the growth of the international reinsurance market, which brings with it political problems which could well affect the ability of a domestic company in meeting its obligations. Whenever balance of payments problems arise in a countryĂs budget calculations with overseas trading partners, the classic defence is to restrict the outgoing flow of funds. Insurance has often suffered, and actions in the courts to enforce payments, mostly prove futile. Considerable effort is devoted by underwriters and brokers alike in studying balance sheets, chairmanĂs comments and whatever other information is available. Creditable as this is, it does not, unfortunately, tell the complete story. Balance sheets will normally only show a companyĂs net trading position, and it in turn may well be relying heavily on reinsurance contracts placed with other parties. Most countries of the world do not have any limitations on the amount of reinsurance which a company can purchase, although some will restrict placements to licensed or approved foreign operators.

Are these fears groundless? I think there is every justification in the effort currently being applied to the subject. The demand for insurance on ever-increasing values, brought about by newly created wealth, the impact of technological progress, and the effects of inflation, ever increase a potential catastrophe loss. The influence of government in such areas as provision of flood cover for home owners property insurance, compulsory participations in beach front buildings and contents in hurricane zones, satisfaction of demand for earthquake coverage on the known fault lines, are excellent examples. Hurricane Betsy in 1965 is regarded as one of the most expensive insurance losses in history, Causing damage in the region of US $700m. It is quite feasible to anticipate that this figure could be incurred by the Texas or Florida coastal pools alone in their own right, with other insured losses swelling the total to a massive figure.

It is in this sense that anxiety arises, coupled with the belief that many reinsurance companies do not themselves have the capital or reserves to meet their gross liabilities. They in turn are relying on an immediate response from their own contracts, failing which their financial structure would be under considerable strain. In the UK, US and Canada, legislation has been introduced requiring insurers in one form or another, to contribute to insolvency funds on a "pre" or post assessment basis. This requires them to subsidise any insolvencies from licensed companies, which would be an additional burden upon them at a time which could be most inopportune from their own point of view. There is also concern that although companies may eventually be able to meet their liabilities, they will not be able to respond in the short term. In the event of a major catastrophe. and based on past experience, a reinsured would need to collect within 30 days to maintain cash flow. The writer sincerely doubts whether all companiess in all parts of the world would be able to comply with this deadline. The responsible companies and underwriters with a reputation to lose, would be expected to fund on demand, regardless of whether they in turn could collect from their reinsurers in a like manner. As we progress down the chain of security, there will inevitably be hold-ups and the difficulties could multiply at an alarming rate.

What can one propose as a solution to this problem? There is no easy answer for certain, but there are some suggestions which might be put into practice in anticipation of the event. It is possible to ascertain in many cases, the amount of reinsurance which a company purchases, and the standard of the security with which it is placed. Companies or underwriters who offer themselves as reinsurers, should volunteer to make this information freely available. LloydĂs underwriters are restricted in the amount of reinsurance which they are permitted to place, and I think this adds to the security behind the policy. In addition, reinsuring companies and underwriters should be prepared to offer letters of credit issued by approved banks as additional security, which will provide for the immediate draw down facility for paid and approved losses, should any delay be incurred in normal accounting procedures. Letters of credit are widely used in commerce in all countries of the world, and are issued by all major banks. The charge is nominal. With the accepted ability of the banking community to decide on the credit-worthiness of any insurance operation, we would benefit from the additional safe-guard which this would introduce. The banker concerned would normally be the one responsible for a companyĂs or underwriterĂs normal cash requirements, and is in an ideal position to decide whether letters of credit can safely be issued, and also to conclude what security needs to be made available. If it were possible for such arrangements to be made available down the chain of security, many of our fears would be substantially reduced. The writer therefore advocates that all reinsurers should be prepared to issue letters of credit on catastrophe reinsurances, with the expectation that a similar facility will be made available to him.

It can be done! When LloydĂs underwriters became licensed insurers in New York and Canada, the necessity to provide letters of credit for outstanding losses and for unearned premiums, was eliminated. As far as catastrophe business is concerned, we elected to continue to provide them on demand. This was done to give added security behind the LloydĂs policy, and to comfort our clients with the certain knowledge that if claims payments should be in any way delayed, such as would cause embarrassment to the company, reimbursement within 48 hours would be possible under the draw down facility. The writer would like to see this arrangement extended throughout the reinsurance industry, and is convinced we can cope with the administrative burden.

When discussing this possibility with a friend in one of the Scandinavian reinsurance companies of impeccable pedigree, he argued that such a request for letters of credit brought into question his companyĂs solvency standards, and must be resisted for that reason alone. With respect, I do not believe this argument to be valid. If such a scheme has merit, it needs to be supported by the strong, whose attitudes and leadership will influence those smaller, and perhaps less experienced reinsurers, along the chain.

The fortunes of reinsurance are so closely linked to the original business that they cannot be divorced one from the other. Reinsurers should never overlook the fact that they are a service industry and should always endeavour to meet the needs of their client companies. The contribution which they can make when facing up to difficulties and providing the solutions, is substantial. In my view it is still the most interesting part of the insurance underwriting scene!

5 May 81

Niagara County -v- Utica Mutual Insurance Co., 80 A.D. 2d 415, 439 N.Y.S. 2d 538, 4th Dept, 5 May 1981. Appellate Division of the Supreme Court of New York held insurer had duty to defend Love Canal action despite pollution exclusion. Pollution exclusion will only be applied to active polluters.

12 May 81

Asbestos ... a Social Problem: A 63 page position paper prepared by the environmental issues task force and issued by the Commercial Union Insurance companies.

Introduction:

.... Though the health effects linked to asbestos exposure have been known since early this century, failure and unwillingness to take necessary measures to control its hazardous tendencies have led to a medical situation in which as many as 5.6 million individuals may die from an asbestos-related disease or from complications associated therewith, and in which millions of others may be disabled... The estimated number of cases filed to date ranges as high as 12,000, involving some 25,000 Plaintiffs and more than 260 Defendants. The demands placed on the Courts have been substantial. The judicial process has been impeded in many jurisdictions, affecting asbestos victims and other litigants alike. With the likelihood that many thousands of additional claims will be filed during the next 25-30 years, it is becoming increasingly apparent that our judicial system will be incapable of providing an effective means of relief for those injured by asbestos-related diseases.

... In an effort to provide compensation to deserving claimants, courts have often fashioned new concepts of law. This recent expansion of the boundaries of insurance and product liability law has confronted defendants with unprecedented levels of liability.

These factors place severe burdens on those responsible in the first instance for compensating asbestos victims - the members of the insurance and asbestos industries. Viewed objectively, the proliferation of asbestos claims and the costs associated with their administration, defence and payment jeopardises the financial stability of many of these companies. ....

  1. The victims of asbestos use: 1. Work-place Victims:

The incidence of the various asbestos-related diseases has been most marked among individuals occupationally exposed to asbestos. Though precise numbers are not available, the National Institute of Health has estimated that between 8 and 1I million individuals have been occupationally-exposed to asbestos since the early 1940s. Included in this number are some 4.5 million shipyard workers, approximately 4 million of whom are believed to have been heavily exposed to asbestos. Estimates as to the total number of individuals who will contract an asbestos-related disease are frightening. In 1978, Joseph Califano, the then secretary of the former Department of Health, Education and Welfare warned that as many as 5.6 million Americans may die of cancer or the other diseases associated with asbestos as a result of exposures in shipyards and other work places since World War II. This would compromise roughly one half of those occupationally exposed to asbestos during this period. Dr. Philip L Polakoff, an Occupational Health Specialist, has estimated that as many as 2.15 million of these individuals will die from one of the asbestos-associated cancers. As most of these cancers will manifest during the next 30-35 years, the per annum average of cancers that may be attributable to asbestos will be 67,000, or about 17% of all cancers detected annually in the United States.

  1. Other Victims:

.... Less identifiable but potentially of greater significance in terms of numbers and liability are the millions of individuals who have been and continue to be exposed to asbestos outside of the workplace...

The impact of such exposures is not known. However, the frightening possibility exists that a large proportion of the American population could some day be plagued by diseases brought on by their everyday, incidental exposure to asbestos......

  1. Ramifications of the Problem: Compensation of Asbestos Victims:
  1. WorkersĂ Compensation and other "non-fault" programs:
  2. Litigation as a Compensation remedy:
  3. The Nature of asbestos product Liability Litigation.

... In view of the extensive and heavy use of asbestos products for shipbuilding during World War II and its aftermath, it is apparent the United States Government will play a role in asbestos litigation. Evidence exists to the effect that the government possessed early awareness of the hazards inherent in asbestos use. Despite this, the government not only failed to take those steps necessary to minimise the risks involved in asbestos exposure, but actually fostered the mineralĂs use. In the effort to win the war, the government condoned careless work practices in naval shipyards, required inclusion of asbestos in products sold to it, and actually provided the asbestos to be used for various projects. These activities by the government demonstrate its legal, moral and financial responsibility for many of todayĂs problems.

  1. Inadequacies of Litigation as a compensation remedy:

.... As claimants continue to look to tort litigation as a means of compensation, the system is in danger of coming to a virtual standstill. Continued and proper resolution of these matters by the Courts will necessitate the employment of thousands of additional personnel and will require the expenditure of millions of dollars for capital improvements, equipment and the like...The situation is likely to get worse in the future. Because the incidence of asbestos diseases will increase in coming years, thousands of additional law suits can be anticipated. With increased efforts being undertaken to determine the existence of parties who are responsible for the injuries either by themselves or in concert with others, these cases will witness an endless addition of Defendants and third party Defendants.....

V. Ramifications of the Problem: the effects on the insurance industry and the implications for society:

  1. The Insurance IndustryĂs Financial Distress:

The proliferation of asbestos litigation and the money that must be expended for legal costs and damages threatens the financial stability of many of the insurance companies that are presently defending and indemnifying the various asbestos defendants. The problems that these insurers will face will effect not just their insureds, but ultimately society as a whole.

It is impossible to assess with exactitude the total liability that the insurance industry will be forced to bear. However, data compiled as to past actions and estimates as to future claims allow rough parameters to be set.

A study conducted by the Insurance Services Office indicates that for the period between July 1976 and 15 March 1977, the average payment in an asbestos case (for settlements and jury awards) was approximately $170,000. If just one million asbestos claims are resolved at that average value[$170,000], the insurance industryĂs liability will be $170bn.

Though the above figures serve to indicate eventualities they, do so without accounting for all possible contingencies. Because future projections are based on past performance, they do not reflect the impact of inflation. As medical costs and wages rise in future years, losses sustained will be higher and will result in increased liability payments. Similarly, the possibility of high jury awards becoming commonplace will cause chaos among insurers. Though we are aware of only two claimants having obtained in excess of $1m, the trend toward higher and higher awards will alter this course.

Perhaps most importantly is the fact that we are only now beginning to perceive the enormity of the situation. In view of the previously-mentioned estimates as to occupational exposure to asbestos and the mortality rates to date, it is not inconceivable that several million claims will ultimately be filed. Taking into considerations the latency periods for the asbestos diseases, the heavy and continued use of asbestos since the 1940Ăs, and the potential for future medical evidence linking asbestos with other diseases, we can anticipate an increased incidence of asbestos-associated diseases during the next two or three decades. With workersĂ compensation and public assistance programs remaining as inadequate compensatory sources, a staggering number of asbestos product liability claims may be filed. Potential total liability will be immense when one includes factors such as inflation and "run-away" jury verdicts. It is conceivable that the damages that will be ultimately awarded will exceed the combined assets of the insurance and asbestos industries.

In addition to liability payments, the insurance industry will be forced to bear tremendous expenses to process, administer, and defend each case filed.

... Because the massive expenditures that asbestos litigation requires exceed the industryĂs present liquid capitalisation, many insurers will be confronted with serious financial problems....

  1. The Expansion Of Tort Liability And Insurance Contract Law As Factors In The Social Problem:

Of ultimately greater significance to the future of the tort system and the insurance industry is the debate which rages today on the issues of insurance coverage. The dispute, which has taken the form of at least twenty declaratory judgement actions nation-wide, pit members of the asbestos and insurance industries against one another in an effort to resolve the issue of who is obligated to defend and indemnify the insured.

Because underwriters of 30 and 40 years ago did not perceive any great risk from asbestos claims, premiums charged were relatively small. Because claims did not arise during the terms of those policies, reserves were not established. Now, with asbestos claims inundating our judicial system, proponents of the exposure theory are demanding that a group of financial institutions - members of the insurance industry - suddenly provide the resources necessary to cover incurred and anticipated liability. The ability of insurers to handle on an "exposure basis" the thousands and thousands of asbestos cases that will be filed in the future is limited.

Vl. Conclusion: The need for Federal solution:

The report concludes that the nature of the problem necessitates Federal Legislative action to devise and implement a system that adequately addresses the needs and interests of asbestos victims, the asbestos industry and insurance companies.

81

The LongshoremenĂs and Harbour WorkerĂs Compensation Act Amendments of 1981 introduced into Congress. Comparable legislative efforts show Congressional recognition that the asbestos health solution must look to parties beyond those in Keene and related suits. This amendment would provide that failure to file a claim within the period prescribed by the law would not bar a compensation claim if such failure was occasioned by mistake or other reasonable cause, or if it is found that the delay has not prejudiced the insurer.

81

Third-Party Product Liability Suits Filed against Johns-Manville Corporation.

Year

Suits Filed

New Plaintiffs

1976

159

---

1977

---

---

1978

792

---

1979

2,709

4,100

1980

5,000

9,300

Sources: "Workers Compensation and Disability in Asbestos-Associated Disease", Report to the U.S. Department of Labor 1981 citing S Soloman, "The Asbestos Fallout at Johns Manville", Fortune Magazine of 7 May 1979 and the Asbestos Litigation Reporter 1981, page 3059.

81

The Government ContractorsĂ Products liability Act of 1981 introduced into Congress. This would provide indemnification to suppliers and their insurers for certain products liability in supplying a product or service to the United States Government

81

The Asbestos Health Hazards Compensation Act of 1980, now being revised for reintroduction in this Congress, proposed minimum standards under which State WorkersĂ Compensation laws would provide adequate and equitable compensation for asbestos-related disability and death. In States where the WorkersĂ Compensation Laws did not meet these minimum Federal standards, the claimant could seek supplemental compensation from his employer, or, through an apportionment mechanism, from other employers or from insurers.

15 May 81

LloydĂs List: Tory group is ready to talk out the LloydĂs Bill

A GROUP of Conservative MPs looks set to kill the LloydĂs reform Bill by talking it out at the report stage - unless the new clause on legal immunities is with-drawn.

Two of them, Mr Richard Needham and Mr Archie Hamilton, said late yesterday after a committee bearing on the Bill that the revised clause appeared no better than the original to which they had strongly objected.

"It also goes against the undertakings which we were given at second reading stage," said Mr Needham. "We are prepared to stop the Bill."

The contentious clause prevents members of the LloydĂs community from suing the overall society or its governing body for damages in a wide variety of circumstances.

In its original form this clause 11 was criticised by a number of M Ps, both Conservative and Labour, and various members of LloydĂs.

At the second reading LloydĂs agreed instead that immunity could be dealt with in a by-law passed by the new governing council, but subject to Parliamentary approval. However, on Tuesday, when the committee stage opened, a revised clause was presented.

Mr Needham and Mr Hamilton were among the group of more than 20 Conservative MPs who helped to get a number of changes in the original Bill, and they say they will have plenty of support for their move if it is necessary.

They are prepared to put down a series of amendments - which could mean debate at the report stage being extended beyond the time allotted for the Bill.

Said Mr Needham: "The Bill could be talked out. There are so many contentious issues which may need to be resolved."

Earlier during the committee hearing, LloydĂs broker Mr Peter Miller explained to the four MPs that the protection of clause 11 should allow the new governing council to use its powers to regulate the market more effectively.

Otherwise it could be inhibited from intervening, as had happened in the past.

The possibility of errors and omissions insurance as an alternative, Mr Miller rejected for several reasons.

It was argued, for example, that the cover would have to be so high that it could not even be placed in the London market, and this would mean revealing sensitive commercial secrets to competitors who were providing the insurance.

Mr Michael Mann, QC, counsel for the two petitioners against the bill, challenged Mr Miller over the immunity clause. "Do you know of any other institution in English law which enjoys immunity from suit for its own actionsĂ? Not even the Crown, since 1947, has enjoyed such an immunity."

Mr Miller argued that LloydĂs was a unique institution, and the restraint on legal action, as he preferred to call it, had to be considered in the light of the qualification that it was a place where people agreed among themselves to take certain actions and nothing more.

Mr Mann contended that the new clause was little different to the old one. It did not matter how incompetent a society or its officers were in dealing with matters covered under the clause, "They could deprive a man of his livelihood or fortune with impunity."

Said Mr Miller firmly: "I would not put that construction on it."

LloydĂs chairman, Mr Peter Green, told the committee that compulsory sale by brokers of their managing agency interests were still a possibility, even though it was not spelled out in the bill.

The new ruling council might decide after a thorough examination that this divestment was the only way to avoid a conflict of interest.

Earlier, though, he had suggested it could be done by less drastic measures.

21 May 81

memorandum by P B Thompson states:

On the 20th May I attended the office of H S Weavers in conjunction with Colin Drage to review the position with regard to asbestosis claims. The review was conducted with John Heath to whom the following queries were addressed:-"Subject: Asbestosis

  1. What was the purpose of the Working Party and when would the Market be able to see any reports of their activities?
  2. What was proposed method of
  1. collection of fees/expenses arising from the Working Party activities and
  2. the allocation of same?
  1. What statistics will be produced, by whom and at what cost?
  2. Has any further progress been made to resolve the Manifestation -v- Exposure Argument?
  3. What is the current A.C.P.C. and how many claimants have commenced actions to date?

In answering our questions John Heath was very forthright and demonstrated deep knowledge of the overall position. His remarks can be summarised as follows:-

Initially the Working Party was formed to try and "control" the issues arising from asbestos claims notwithstanding the Manifestation -v- Exposure Argument. It was felt that the establishment of a Working Party would relieve the Market of substantial costs which would flow through from a divided market and the resultant lawyerĂs bonanza., if that Working Party could firstly control the activities of lawyers, secondly demonstrate that Insurers and Reinsurers would meet losses (whether they are ultimately discharged on an exposure or manifestation basis) and thirdly set up a central computer system to develop and produce statistics (on a manifestation and exposure basis) in various forms for the benefit of the whole Market. ......

Two reports have been issued to date and a third will be submitted shortly. We were told that these reports are very non-committal and reflect the Working PartyĂs philosophy of keeping a low profile. To a certain extent this philosophy resulted in the appointment of Stephen Mitchell of Elborne Mitchell to advise the Working Party on matters involving Privilege and also co-ordinate the publication of reports, etc.. The Privilege issue arose from the deposition of Jim Ayliffe in the Armstrong Cork Declaratory Relief Action were he made reference to the Working Party. In hindsight, John Heath feels that there was a possible over-reaction to the disclosure although for the time being, at least, it is intended to continue the use of Elborne Mitchell. In any event, their activities to date have been fairly limited and no substantial fees are involved. John Heath recognises that to date the actions of the Working Party are unofficial. It is his view that the Working Party should approach the Market for a mandate as this would no doubt relieve most of the MarketĂs apprehension regarding the Working PartyĂs activities.

To date, there are approximately 12,000 claimants, although the number in suit is less. The current A.C.P.C. is $1,250 (including fees) and whilst Mendes have supported that this will hold to 1985, other lawyers are not so optimistic as they feel that it will be good until the end of the current year /beginning of 1982.

A lot of work has been done to computerise the statistics that will be needed by all interested parties. A Databank has been set up by an independent organisation in North America which contains details of claimants; defendants; policy limits per year; amounts paid and outstanding, etc.. The cost of developing the database is estimated at $300K. Information will be fed into the databank by the major defending attorneys, via terminals in their offices. The annual costs in running the system are estimated at $140K. At this stage, it looks as though there will be four or possibly five terminals. The system has two facilities for input and output, i.e. public information and confidential information. Public information will be available without restriction, whilst confidential information will be for the userĂs eyes only. Clearly it will be necessary to ascertain what parameters have been established, if any, to determine what is classified as public or confidential. As output is dependant upon input and the Market is going to have to rely on computer printouts, it follows that all vital information must be classified as public.

The allocation of costs, both for setting up and running the databank will be according to usage. Hence the total cost will be divided by the number of inputs and the lawyers debited accordingly. These costs will then be passed back in their fees.

The first printout is scheduled for the 1st November 1982 and will show amounts paid and outstandings by claimants and by insured. The claimant listing will be cross-referenced against a listing of class actions.

Towards the end of 1982 it is envisaged that the computer will produce monthly statistics by policy recall, (both on an Exposure and Manifestation basis) although paid losses will invariably be collected on an Exposure basis. It has not been decided how computer printouts will be distributed. although at this stage, it is thought that the London Office of Toplis & Harding will be used. Whether these reports will go directly to Insurers and Reinsurers or via the Brokers is a matter to be decided.

It is apparent that the database will contain a great deal of information and should enable Insurers and Reinsurers to come up with some reasonably reliable loss numbers. It should also be possible to diagnose the report and thus get a better fix on the IBNR position. Following the review with John Heath I have written to him raising a number of queries as per the attached letter.

21 May 81

A stop loss ˙2,459,939 xs ˙4,141,828 reinsurance placed for D J Walker, Underwriter of Aviation Syndicate 295 managed by Gooda Walker to incept at 31 December 1980 covering 1978 and prior years. Outhwaite 317/661 wrote 25%.

22 May 81

Financial Times: Commons committee seeks divestment by LloydĂs brokers

LLOYDĂs of London, the insurance market supported by a private membership, faces the biggest upheaval in its 300-year history following a Parliamentary decision yesterday.

A Commons committee wants LloydĂs insurance brokers to sell their underwriting management companies and it wants that requirement to be incorporated in the private Bill being promoted by LloydĂs.

The broker controlled underwriting management companies look after the underwriting affairs of over 10,000 individual underwriting members of LloydĂs, whose private wealth allows the market to function.

The underwriting management companies, owned by leading insurance broking firms such as Alexander Howden, Hogg Robinson, Willis Faber, and Minet Holdings, are worth in total over ˙100m and contribute up to a third of LloydĂs brokersĂ profits. Brokers are fiercely opposed to divestment.

The practice of ownership by the brokers of LloydĂs underwriting companies was condemned by Lord Cromer, who studied Lloyd s affairs in the late 1960s. "There is a conflict of interest which cannot be ignored, " he said in a report.

Sir Henry Fisher identified areas of actual and potential abuse in the relationship when he studied Lloyd s affairs to produce the report into LloydĂs self regulation published last year, which forms the basis of the current proposed legislation

The Bill represents LloydĂs first major legislative change in over 100 years. But in its present form it does not embody Sir HenryĂs recommendation for the total divestment of the brokerĂs links with underwriting managing companies.

The Commons Committee, chaired by Mr Michael Meacher, Labour MP for Oldlham West which has been studying the private Bill, made its controversial decision yesterday. .

" We are of the opinion that the Bill ought to be amended so as to provide for complete divestment as between broilers and underwriters," within a period of five years from the Bill receiving the Royal Assent, Mr Meacher told LloydĂs.

" We therefore ask the promoters (LloydĂs) whether they are prepared to seek an additional provision," Mr Meacher said.

Counsel for LloydĂs, Mr Peter Boydel, QC, requested time for LloydĂs to consider the decision.

If LloydĂs does not accept the decision by the Commons committee its Bill could be thrown out by Parliament.

Yesterday Mr Ronald Taylor chairman of Willis Faber, said " It is a tragic day for LloydĂs."

Mr Peter Green, LloydĂs chairman, said: " You could say I am disappointed by the committeeĂs decision."

Christie Moir writes: Mr Nicholas Goodison, chairman of the Stock Exchange, said he had no doubt that the exchangeĂs own lawyers would be looking at the LloydĂs committeeĂs decision on divestment.

The exchange is defending its own rule book, which insists on separating the jobbing capacity from broking, in the Restrictive Practices Court. The exchange believes that conflicts of interest can occur where one firm acts as both principal and agent.

24 May 81

Sunday Telegraph: Why LloydĂs Bill is now at risk

THE HARSH reality for Peter Green, chairman of LloydĂs, is that the institutionĂs ill-fated Parliamentary Bill, heralding the first major legislative change in more than 100 years, has been torpedoed.

There has been no lack of smoke signals but I4 Conservative MPs are still incensed that an indemnity protecting LloydĂs officers from legal suits for damages has remained in the main body of the Bill.

There is now a strong risk that the Bill will not pass the third reading and will be talked out.

On Wednesday LloydĂs Committee, led by Green, meet to decide their next move now that the House of Commons committee has insisted on a new clause to force the insurance broking fraternity, who dominate the market, to dispose of their captive underwriting agencies.

Ever since the sell-off was urged last year in the Fisher report - commissioned by LloydĂs three years ago - Green and his colleagues have ill advisedly sought to defuse the most explosive issue facing the market.

Far too many of the scandals that have convulsed LloydĂs in recent years have involved the conflict of interest which arises when an underwriting agent (who must consider whether to accept risks for his syndicate) is controlled by the broker who brings the risk to him.

Lord Cromer called for the divestment of brokersĂ underwriting interests 12 years ago, Fisher recommended it last year, but the response of Green and his colleagues has been: Wait till the new Council of LloydĂs has been formed which will deal with the issue then.

But the Commons committee, chaired by Left-wing Labour MP Michael Meacher (who is supported by members on both sides) has found in favour of the petition calling for immediate divestment.

Green has no choice but to listen to ParliamentĂs voice.

24 May 81

Sunday Telegraph: The going rate for protection

AS we warned last wee the Hedderwick Stirling debacle, coming hard on the heels of broker Norman CollinĂs crash, has led to a 50 per cent increase in the Stock ExchangeĂs general levy on member firms from 1 per cent to 1.5 per cent, with effect from July 1.

HedderwickĂs estimated deficiency of just over ˙1 million is covered by its 22 partners estimated assets of ˙1. 3 million but it is the Compensation Fund which takes the initial strain in settling clientsĂ claims. it then becomes a creditor of the hammered firm.

Stock Exchange reserves of close on ˙9 million are behind the Fund - now standing at around ˙1. 25 million - but the Tower has clearly been guided by prudence.

HedderwickĂs gilt activities as we have stressed for some time have much to answer for.

81

In 1981, the Association of British Insurers introduced with Government support, a Code of Practice for the selling of general insurance by intermediaries other than registered insurance brokers. The ABI has consistently argued that self regulation is preferable to statutory control and that there was little evidence of abuse of the current system. Over the years certain amendments have been made and the latest version stems from 1989. The Code is monitored by an independent Committee including insurers, consumers and the DTI. The CommitteeĂs last report published in January 1993 concluded that "the Code offers reasonable protection to consumers and that a statutory scheme is not warranted." The DTI agreed with this view. The ABI Code is, however, considerably less stringent than the requirements imposed by the IBRC.

26 May 81

The Times: LloydĂs Bill faces new hurdle

A new threat to the luckless LloydĂs Bill emerged at the weekend. At a hurriedly called meeting rebel members of the market decided to continue their fight for the removal of a clause in the Bill which would have the effect of giving LloydĂs proposed ruling council an indemnity against legal action.

The rebel names claimed to have enlisted the support of at least 17 Tory MPs, who will attempt to wreck the BillĂs Parliamentary progress by talking it out at its Third Reading, if the clause is not removed.

The new threat will come as an added blow to LloydĂs existing committee, which is due to meet tomorrow in an effort to hammer out a response to last weekĂs surprise demand from a Parliamentary Committee that the Bill be changed to provide for complete divestment of insurance brokersĂ underwriting interests within the market.

The new move means, however, that even if LloydĂs can come up with a satisfactory formula on divestment, the Bill r could still be in danger of falling by the wayside.

Leading insurance brokers whose representative dominate the LloydĂs committee may yet attempt to resist the divestment clause, which would force them to sell off their lucrative underwriting interests within five years. But the committee is known to be fearful that the marketĂs very status as a self-regulatory body could be at risk if the Bill does not succeed.

Some officials fear that s LloydĂs could eventually become directly answerable to the Department of Trade - as are all insurance companies - if the market cannot prove its ability to police itself properly by producing a Bill embodying much needed reforms in rules and regulations.

This view is heightened by the knowledge that Whitehall has been taking a keen interest in the recent spate of financial scandals at LloydĂs. In many of these cases LloydĂs antiquated rule book was thought to be in part at fault.

Ironically the indemnity clause which is the subject of the latest outcry was approved by the same Parliamentary Committee which made the call for divestment.

Despite this, some members claim that it is wrong that the institution should be able to put itself above the law.

The group, yet to identify its members, claims to be acting on purely altruistic grounds although it is understood that many of its members have been incensed by the growing power wielded in the market place by major insurance broking houses in recent years.

The major publicly-quoted insurance broking firms now control around half the underwriting operations at LloydĂs and, as suppliers of the majority of its business, are in a strong position to dictate terms.

27 May 81

Letter from H S Weavers (Underwriting Agencies) Ltd to Stewart Wrightson North America Ltd Re: PPG Industries.

We require to put you on notice that Underwriters subscribing to Umbrella Policy 78/14758/14 for the period 36 months at the 1st July 1978 in the amount of $5,000,000 do not provide coverage for Liability emanating from any Disease or Injury arising out of Asbestos Products.

At the time Policy 78/14758/14 was negotiated we were not informed by any party that the Primary Policies had an exclusion relating to Liability emanating from any Disease or Injury arising out-of Asbestos Products. Had we been properly informed we would have included a similar exclusion within our own Policy language. We must also advise you that at no time did Underwriters agree to the inclusion of Endorsement 6 to Umbrella Policy 78/14758/14.

We request you advise the Insured and any other necessary party of our position.

27 May 81

The Chester Report finalised, following the appointment of a formal Enquiry into the affairs of Oakley Vaughan & Co Ltd, Oakley Vaughan (Underwriting) Ltd.. The Committee met on 19 occasions. Definitions of certain terms used throughout the report:- "Writes" means tonner reinsurances placed with Oakley Vaughan managed Non-Marine Syndicate 862; "Buys" means tonner reinsurances effected on behalf of Non-Marine Syndicate 862. The Committee of Enquiry consisted of:-

A.H. Chester

Committee of LloydĂs

N F Holland FCA

Ernst & Whinney

A J Pagram

Aviation Underwriter Syndicate 580, Lambert Bros

81

U.S. Federal Government publications: "The Economic Consequences of Asbestos-Associated Occupational Disease" by Johnson & Heller; unpublished study for the U.S. Department of Labor.

 

30 May 81

Economist: LloydĂs is not immune - A draft bill before parliament gives LondonĂs international insurersĂ club excessive privileges

Set two big tests on a private parliamentary bill to strengthen the self-regulatory powers of LloydĂs of London, a four-man house of commons committee has passed one test and flunked the other. It has, wisely, told the committee of LloydĂs to work out detailed proposals for divorcing LloydĂs brokers from managing agents. It has unwisely recommended that a yet-to-be-formed ruling council of LloydĂs be granted sweeping immunities from legal liability for some of its actions.

As some Labour members of parliament are aware, if parliament does indeed grant LloydĂs the immunities it wants, the Conservative government may find it harder (or, at least, more embarrassing) to push through proposed legislation to deprive British trades unions of some of their legal immunities. This is a side-show. Much more important, by granting such immunities parliament will be placing the council of LloydĂs above the law on certain issues and depriving many individuals of their legal rights.

LloydĂs counters that it has already responded, constructively, to outside pressure and narrowed the scope of clause 11 of the bill to give it only limited immunity. Lawyers, as is their wont, are in disagreement on this. What is beyond dispute is that, under the proposed bill, it will be impossible for many people to sue the council of LloydĂs, the society of LloydĂs or any of its employees for damages for negligence or breach of duty. Among those who will have this legal right whipped away from them are the members of LloydĂs (who back the market with their personal wealth), underwriters (who write risks on behalf of members), and LloydĂs brokers (who alone can bring risks to the underwriting room at LloydĂs). This smacks more of self-indulgence than self-regulation.

The four-man committee has made a mistake that parliament needs to correct. No other body in Britain enjoys an immunity from liability for negligence - not the trade unions, not even the crown. Nor do regulatory or disciplinary bodies, such as the council of the Stock Exchange, the Law Society or the General Medical Council, shirk their duties in the absence of such protection.

In its defence, LloydĂs has voted in favour of clause 11 before. But, in evidence to the parliamentary committee, Mr Peter Miller, a past committee member of LloydĂs, has confessed: "I always found, I think, this clause 11 in the bill very unclear as to what it was we were about." If Mr Miller finds it "unclear", how obvious are the ramifications of clause 11 to the vast membership of LloydĂs?

The answer? Give LloydĂs only the immunity enjoyed by companies under section 448 of the 1948 Companies Act-immunity already written into clause 10 of the LloydĂs bill (which looks redundant in the face of clause 11). Section 448 immunity would permit the courts to excuse the council of LloydĂs, the society of LloydĂs or its employees from liability in any proceedings brought for negligence, default, breach of duty or breach of trust where the court found they had acted "reasonably and honestly".

No need to be railroaded

The pass has not yet been sold. A group of Conservative MPs, Mr Archie Hamilton, Lord Cranborne, and Mr Jonathan Aitken prominent among them, want clause 11 removed from the bill. Unless it is, they could frustrate, by filibuster on the third reading, a bill granted a limited amount of parliamentary time. But the bill may not reach even that stage unless LloydĂs can come up with a formula for divestment, acceptable to the commons committee.

Many LloydĂs insurance brokers own managing agents, which in turn control syndicates which underwrite risks. Managing agents contribute up to a third of brokersĂ profits. Both Sir Henry Fisher and, 11 years earlier, Lord Cromer, saw a conflict of interest and scope for abuse in such an arrangement. How can a broker, who in law is the agent of the assured, also have an interest in the syndicate which writes a risk? As Mr Ian Posgate, a marine underwriter whose syndicates are effectively controlled by the big broking firm Alexander Howden, succinctly put it in evidence to the commons committee: "The broker is not our friend; he should not be."

Last year Sir Henry FisherĂs working party recommended that LloydĂs brokers divest their interests in managing agents within five years of the bill receiving royal assent. LloydĂs ignored the recommendation when it drafted the bill, thanks mainly to pressure from the big brokers. The commons committee wants divestment à Fisher written into the bill. It also wants to ban managing agents from owning membersĂ agents, which introduce new names to LloydĂs.

Naturally enough, the brokers are unhappy about divestment and some have threatened to take business away from LloydĂs if divestment is written into the bill. Neither LloydĂs nor parliament should be railroaded by such threats. Brokers could be in breach of their duty to clients if they shunned the LloydĂs market simply because they were made to divest.

LloydĂs badly needs its bill to be enacted as soon as possible. It has muddled along in the past with inadequate self-regulatory powers. Unless it writes divestment into the bill and (even at this late stage) ditches clause 11, chances are that its private legislation will not reach the statute books. In that event, it will be left to parliament to impose its will on the reluctant self-regulators.

0 Jun 81

Risk Management: Superfund Liabilities: A Super Headache to Insure

Writing in Risk Management, an American lawyer, Robert S Faron, who was working for the US law firm LeBoeuf, Lamb, Leiby & MacRae, that is currently employed by LloydĂs to handle NamesĂ US tax returns, spells out the potentially enormous and unquantifiable liabilities created by CERCLA (Superfund) Act:-

Liability defences are limited - Insurers may face unlimited liability - Superfund supports retroactive liability against waste generators - The City of Philadelphia has asked for $20m in damages - The Liabilities Superfund created are uncertain and potentially enormous ..

0 Jun 81

Dr Irving Selikoff issues a further report entitled ŠDisability Compensation for Asbestos-related Diseases in the United States?Ă, containing some 650 pages for the U.S. Department of Labor, detailing the effects of exposure to asbestos together with projections of the expected death rate and partial incapacity. The period in question studied was from October 1978 to June 1981. A further report was published in June 1982, for the period October 1978 to June 1982, containing 691 pages.

Population at Risk of asbestos-related disease:

We estimate that there are presently more than 9 million American workers, survivors of over 13 million workers in primary and secondary manufacturing industries, shipyards, construction work and a number of other industries and occupations who, in the past 40 years, were significantly exposed to asbestos.

2 Jun 81

Daily Telegraph: LloydĂs backs down on divestment front

LLOYDĂS yesterday threatened to withdrew its parliamentary Bill rather than separate membersĂ agents from managing Agents, as a committee of MPs had suggested. But when the MPs called LloydĂs bluff and insisted on the amendment to the Bill, LloydĂs subsequently backed down and agreed to consult its members.

Counsel representing LloydĂs initially told MPs yesterday morning that LloydĂs would not even consult its members on the issue. Michael Meacher MP, chairman of the Commons committee examining the Bill, checked that this was a matter of policy, and was assured it was.

The surprise development represents the latest stage in a long retreat by LloydĂs in the face of repeated attacks on conflict of interests. Both Lord CromerĂs report in 1969 and Sir Henry FisherĂs last year wanted complete legal barriers between brokers and underwriters but LloydĂs has been delaying action and reluctant to make a drastic move.

When pressed by critics and MPs it fought against complete divestment but conceded the principle. Unwilling to trust LloydĂs to take action, the MPs wrote compulsory separation into the Bill. They added that membersĂ agents (who look after the accounts and interests of the l9,000 members of LloydĂs) should be distinct from managing agents (who run the underwriting syndicates).

Earlier LloydĂs had tried to deter changes to the Bill on the grounds that consultation would require the elaborate machinery of "Wharncliffe" meeting to approve changes in the Bill. Yesterday morning it said a postal ballot would be sufficient, but that would require two general meetings and approval from the Recorder of the City of London for a change in the by-laws, so the result would not be available until mid-August.

But yesterday afternoon LloydĂs conceded it may be able to get results from the membership by July 20, before the parliamentary recess.

One reason for the tactical error in fighting enforced changes was that LloydĂs had not realised separation of the two agency types would be forced on it, although it had notification in advance. Now the Corporation of LloydĂs is wondering how to head off a movement to insist on another change to the Bill - removal of the clause giving immunity from legal action even in the case of negligence or breach of trust.

3 Jun 81

Financial Times: LloydĂs plans postal vote on self-regulation rulings

THE RULING committee of LloydĂs of London is. pressing ahead with urgent plans to set, up its first postal vote in the marketĂs 300 year history.

LloydĂs needs to canvass its 20,000 members on rulings laid down by a Commons committee, which has been studying a Bill to improve self regulation, the first major legislative change that LloydĂs has sought in more than 100 years.

The committee decided over the past few weeks that the Bill ought to be amended to remove conflicts of interest which exist in LloydĂs structure.

The Bill "ought to be amended so as to provide for complete divestment between brokers and underwriters, and also preclude managing agents acting as membersĂ agents, and that this should be done within five years of the Bill receiving the royal assent," the committee said.

LloydĂs was asked by the committee to petition support on both recommendations, which are likely to cause the biggest upheaval that the market has seen.

The market plans to make a by-law which will create the postal vote through two general meetings of members. The dates were set at an extraordinary meeting of the LloydĂs committee yesterday, which met to discuss latest parliamentary developments.

The first meeting on June 9 will give notice to members of the by-law and on June 17 members will vote on its creation.

Approval for the by-law will need to be obtained from the Recorder of London.

LloydĂs may be able to gain approval from its members on the amendments to the Bill by July 20, the date when it indicated to the committee that it would be able to return with its support for the amendments.

All LloydĂs insurance brokers and independent underwriting management agents, the groups which look after the affairs of underwriting syndicates, have been studying the implications of the Commons decision and discussing whether there are ways to mitigate its effects on their operations.

5 Jun 81

An Unlimited run-off reinsurance placed for Brice, Underwriter of Syndicate 609 to incept at 31 December 1980 covering 1976 and prior years. Outhwaite 317/661 wrote 100%.

Jun 81

Letter from Attorneys to the Underwriters at interest. Assured: ... The enclosed attachments reflect that the Travelers has exhausted its aggregate limits and as a consequence Johns Manville Corporation demands direct, immediate payment from underwriters in the sum of $347,753 on an exposure basis against the following years: [1952-1959].

Earlier this year and on 7 January 1981 Mr. Von Wald [Corporate Counsel, Johns-Manville Corporation], during a visit to New York called the undersigned relating that he wanted to meet in order to discuss the role that Johns-Manville expected the London excess insurers would play once the primary limits are exhausted. It so happened that Jim Ayliffe was also in New York on that day, accordingly a meeting was arranged between Mr Von Wald, Jim Ayliffe and the undersigned. During the course of the meeting, Mr. Von Wald announced that the Travelers was at the threshold of exhausting its aggregate products limits of $500,000 per year for all years spanning its coverage from 1947 through 1976, and that Johns-Manville fully expected that the London excess insurers for their years would have to respond to future losses on the same basis that the Travelers had done so with exposure..... Thereafter, when Jim Ayliffe, Keith Rayment and John Heath were preparing to attend a conference in New York during the week of April 6th on the computerisation programme, the suggestion was put forth that a meeting with Home and Johns Manville would be a good idea. Accordingly, arrangements were made to meet.... The meeting with Home and Johns Manville had to be postponed. However, a dinner conference with Von Wald was arranged for the 9th during which limits and attaching levels were considered in detail. It was then agreed that on the following day Messrs Von Wald and Caton would conduct an examination of all the policies and/or slips. On that morning and prior to the examination, they did meet and conferred at some length with Robin Jackson, Jim Ayliffe, Keith Rayment and the undersigned whereupon for the most part a general discussion was had on Johns Manville underwriting that probably took place during the time in question.

9 Jun 81

E E Nelson, a Committee of LloydĂs Member and Chairman of the AWP, wrote to all interested underwriters requesting a General Authority containing a hold harmless in respect of asbestosis claims. Re: Asbestosis.

On February 10th I reported to you on recent developments in the United States Litigation relating to asbestosis. In addition I informed you that the Working Party had arranged for reports relating to this matter to be available at Elborne Mitchell for your inspection. During the last three months nearly all the London Market Insurers and Reinsurers concerned with this matter have taken the opportunity to review these reports. Over the last two months London Market Insurers concerned with the direct insurance of Johns- Manville Corporation have authorised certain leading underwriters, when supported by the Working Party, to bind them in relation to Johns-Manville asbestosis claims.... It will be necessary for the working party to obtain a general authority to act on behalf of insurers and re-insurers in the London market concerned with asbestosis... It is not the working partyĂs present intention to play a part in the exposure/manifestation controversy. Enclosed with the letter was a "general authority of the working party".(This met with a good response. By 1 December 1981, 88 LloydĂs Syndicates and 23 Insurance Companies had given authority. In 1981, there were 420 active LloydĂs Syndicates.)

17 Jun 81

General Meeting of Members of LloydĂs: Statement by Mr Peter Green, Chairman

As you know, the new LloydĂs Bill was deposited Parliament on 26th November, 1980 and a Petition was filed against it. The Bill had its Second Reading on 24th March and was approved at the end of the Debate by 206 votes to 42. It then went to the Committee Stage and Hearings were started in front of the Parliamentary Committee on 12th May and continued for another 5 days.

At the end of the Hearing the Parliamentary Committee rejected the PetitionersĂ amendments with regard to a single electorate and they accepted LloydĂs amendments for 8 External members on the Council. They also accepted the new Clause 11 presented by LloydĂs seeking restraint from suit by Members of the LloydĂs Community. I think it worthwhile quoting the Chairman of the Parliamentary CommitteeĂs words in a BBC broadcast which he made afterwards:

"Immunities are a protection against legal come-back in the form of a suit for damages, by aggrieved parties. Now we believe that it is reasonable that LloydĂs should have immunities if they are going to intervene in the Market in order to prevent abuses. Otherwise there is a risk that they will be unduly timid and cautious because they will be looking over their shoulder, fearing that they will be a subject of damages if they intervene wrongly. They must define the immunities that they want as tightly as possible, because we donĂt want LloydĂs to be a law unto itself, we donĂt want it to be above the law, but we wish it to have sufficient power properly to regulate the Market. Now we did force them to make changes, they have made changes in the way that we approved of and weĂre basically therefore prepared to allow that degree of immunities."

Lastly, the Parliamentary Committee requested LloydĂs to seek additional provisions on Divestment and Divorce as they have become known. I will not deal with these matters here as they are the subject of the Extraordinary General Meeting which follows this Meeting. Meanwhile, much continues to be done regarding the recommendations of the Fisher Report. The 20 or so Task Groups which we set up have continued to carry out a considerable amount of research and preparatory work. These Task Groups, which include representatives from the Committee of LloydĂs, the Market and the Corporation Departments will, in due course, provide full briefing papers for consultation with interested parties. Major changes are, of course, dependent on the outcome of deliberations in Parliament.

As I have mentioned on several occasions recently, a major cause of the problems confronting our industry is the availability of too much cheap reinsurance, supported by high interest rates. The prospect of failure of a reinsurer and the repercussions flowing therefrom should not be under-estimated.

Most of you will be aware that the Committee of LloydĂs has decided to reduce the reinsurance allowances when calculating each NameĂs calendar year premium income for premium limit purposes. These reinsurance limits for 1982 have been reduced to 30% (20% in the Marine market) and further reductions are likely in the future. The percentage for Aviation is still under discussion. Your Committee considers this to be an essential step designed to ensure that syndicates do not "overtrade", thereby placing undue reliance on reinsurers in order to settle claims.

As you will know, the Committee felt it necessary to set up two Agency Companies (known as Additional Underwriting Agencies Limited and Additional Underwriting Agencies (No. 2) Limited), to handle the run-off of the Ashby and Sasse Accounts. Your Committee is deeply grateful to those members of the Community who continue to give so freely of their time to serve as directors of these Agencies and who have worked so diligently on behalf of the Members concerned to resolve these problems.

The number of new Names coming forward as at 1st June was 833, compared with 604 at the same time last year, an increase of about 38%. We expect the total for the year to be in excess of 1,200, compared with 880 last year.

Your Committee believes that it is necessary for LloydĂs to reinforce its efforts to enhance the systems serving the Market and to plan for the use of the new information handling and communications technologies and, accordingly, has made changes to the composition and role of the relevant Policy Board. These changes include the addition of a small number of members with experience of such activities outside LloydĂs. Mr. B. J. Brennan is Chairman of this new group which is known as the "Systems and Communications Policy Board", and a senior member of the CorporationĂs management, Mr. R. T. P. Ellington, will be giving the major part of his time to this work.

I now turn to a number of matters affecting our internal organisation, dealing first with an important cost item. In approving the Corporation Budget for 1981 your Committee was fully aware of the decline in profitability in the Market and was determined to contain costs. To this end the Secretary General and his colleagues proposed that a 5% reduction in staff numbers be achieved by natural wastage during the year, a recommendation which was supported by our Policy Boards and welcomed by the Committee. Reductions made to date suggest that the year end target will be achieved. However we must not lose sight of the fact that over the last ten years the number of Members of LloydĂs has increased from 5,981 in 1971 to 19,136 in 1981, the requirements for information of the UK and foreign governments has greatly increased and the need for effective self-regulation has grown both in extent and detail. In spite of all these pressures the number of staff employed has been reduced from 2,208 at the end of 1970 to 2,085 at the end of 1980. Each figure includes LloydĂs of London Press. I believe that you will endorse the CommitteeĂs view that it is a considerable achievement to reduce staff numbers during a period when the demands on the staff have never been greater

I am pleased to report that the Redevelopment project continues to proceed well. The demolition of the 1928 Building was completed by Willments Ltd. on time at the end of January and Bovis Construction took possession of the site at the beginning of February.

Work has commenced on the sub-structure and certain preliminary piling work has been done. Before the main piling is undertaken however a further 34,000 cubic metres of material will need to be removed from the site in order to get down to the level of the floor slab of the sub-basement of the new building.

Site huts, to accommodate the ContractorĂs offices, have had to be located over Lime Street where it is intended that they shall remain throughout the contract. There will not be space for them on the site unless they are moved as work proceeds. This would of course be disruptive and expensive.

The contract with Bovis was signed in the sum of ˙74.8m at February 1981 values and your Committee anticipates that the only major effect on the estimated cost will be increases due to inflation as it affects the construction industry. A very careful watch is being kept on redevelopment expenditure and all sub-contracts let to date are within the cost plan figure.

I am very pleased to tell you that Her Majesty the Queen Mother has consented to visit LloydĂs on Thursday 5th November to mark in a short ceremony the start of the major works on the new building.

The new underwriting area, which opened last autumn, and which is known throughout the Market as the "Yellow Submarine", has become an established part of the Room sooner than was expected. There are now 15 boxes with a total seating capacity of 70 in the area as well as 94 occupied brokersĂ booths. Two major syndicates are shortly moving down from the ground floor in order to gain extra space. We are very grateful to the Director of the National Maritime Museum for the loan of the unique collection of photographs which is now displayed around the walls.

With regard to catering arrangements in our present building, there has been an increasing demand for the extended services introduced last spring in the Basement Restaurant. The number using the Carvery has steadily increased and now shows a growth of 30% over the last six months. The Wine Bar is usually filled to capacity at lunch time. It is not as well patronised as one would wish in the evenings but efforts are being made to promote its use.

The division of the CaptainsĂ Room at lunch-time into separate ŠClubroomĂ and Ša la CarteĂ restaurants has proved to be very successful. The CaptainsĂ Room management, with the advice of an outside consultant, is now undertaking a detailed study of operating methods to ensure that appropriate services are being offered in the most effective way.

Work has now started to modernise the lifts throughout the 1958 Building. This is a long term project but a much needed improvement, and I realise the considerable inconvenience it is causing.

In times of staff cut-backs training is doubly important both from the employerĂs and employeeĂs point of view. LloydĂs Training Centre has responded by increased marketing of its courses and by running some shorter courses on particular topics of concern within the Market, notably Terms of Credit requirements.

On a less domestic note our co-operation with LloydĂs Register of Shipping, in providing shipping information services through the Data Centre in LloydĂs Avenue, has taken a further step forward. Both LloydĂs of London Press and LloydĂs Register have agreed to investigate in detail whether the sharing of selected resources would be in the interests of both organisations, particularly in terms of economies in information collecting and data processing.

British Telecom invited LloydĂs of London Press to take part in the international market trial of the Prestel View data service. The trial has met all of the criteria for success laid down and the services will go public from 1st July, 1981, when it will be only the third fully public Viewdata service in the world and the only one available on an international basis. The trial has given us valuable experience in the field of international electronic publishing and a market lead in the dissemination of shipping information via this medium.

I am glad to report that, following friendly discussions with the I.R.B. in the normal manner in which discussions of this nature take place between members of the London insurance market, an agreement in principle has been reached to dispose of the reinsurance dispute between Syndicate 762 and the I.R.B. A number of legal formalities still remain to be concluded and confirmations obtained before the settlement is final.

29 Jun 81

U.S. Business Insurance Magazine: Asbestos Insurers apply Exposure Rule

Even as they press their battles through the courts, U.S. insurance companies appear to be edging toward a consensus on how to pay for asbestos disease claims.

The exposure theory of liability for asbestos-related claims is gaining ground with some insurers since it was adopted ... in INA -v- 48 Insulations and two subsequent courts.

Conceding that the courts appear to prefer the exposure theory over the manifestation theory, Aetna Casualty & Surety Co and Travelers Insurance Co have both announced their intention to pay asbestos claims according to the exposure approach.

A senior claims executive at another insurance company told Business Insurance that INA had also recently adopted the exposure approach. But an INA spokesperson said the companyĂs current position is that manifestation is the appropriate way to handle cases.

ŠWhile the court decisions to date have held to the contrary, those court cases are not as yet final - they are all on appeal," said the spokesperson."

"We still believe the manifestation theory is correct, but we cannot ignore the fact that two U.S. circuit courts and a district court have all ruled in favour of exposure", explained John F. Shea, Jr., Aetna vice president and claims counsel."

23 Jun 81

The Times: Letter of 11 June 1981 to the Editor from H A P Fisher (Sir Henry Fisher) - LloydĂs Bill

Sir, The reasons which led to a substantial majority of the Fisher working party to recommend that LloydĂs brokers should be required to divest themselves of the owner-ship of managing agencies (Business News letter, June 1) are set out in chapter 12 of the report. The same considerations do not apply to links between membersĂ agents and managing agents.

The possibility of action contrary to the interest of assureds (which was a powerful motive for our recommendations in chapter 12) does not arise. I believe that, if it became impossible for the same person, firm or company to act both as a managing agent and as, a membersĂ agent so that it was no longer possible for managing agents to have direct names, standards of underwriting would decline and LloydĂs would suffer. Names would be deprived of the freedom which they now enjoy (and which they may well consider to be in their best interests) to put their affairs in the hands of an agency which has its own syndicates.

Incidentally, it would become far more difficult to carry through the divestment by brokers of the ownership of managing agents.

1 Jul 81

An unlimited xs $8m run-off reinsurance placed for English & American, a Bowring Captive Insurance Company, to incept at 1 July 1981 covering the 1975 and prior years. Outhwaite wrote 100%.

1 Jul 81

Benfield Lovick & Rees placed an unlimited run-off reinsurance for the Sedgwick Forbes Syndicate 274 and 300 to cover all losses payable on or after 1 July 1981. Syndicate 274 and 300 ceased underwriting on 30 September 1970. Brooks & Dooley Marine Syndicate 89, 85 wrote 100%. In 1985, the following bureau signing number 300 was party to the Wellington Agreement, indicating a long tail asbestosis involvement.

2 Jul 81

Times: John Rew seeks 500 for LloydĂs splinter group

A BREAKAWAY group of LloydĂs of London members headed by chartered accountant John Rew, proposes the formation of a second Association of Members of LloydĂs.

Followings the stormy Albert Hall meeting of LloydĂs members in November of last year an Association of External Members of LloydĂs was set up by Lady Janet Middleton, which Mr Rew and his supporters originally joined.

The proposed new association, which will not come into being unless at least 500 members decide to join, is to work in conjunction with the working members of LloydĂs to "assist in the selection of candidates as External Members of LloydĂs Council."

A circular letter to member signed by the breakaway group of 100, is being sent to all LloydĂs agents with a request to pass on the letter to the members they represent.

Mr Rew claims that Lady MiddletonĂs association is unrepresentative of the general membership of LloydĂs. "She sponsored a petition against the LloydĂs bill, against our wishes," says the circular letter.

Following the petition, the Bill was amended to give the external members eight seats on the proposed new LloydĂs council instead of six.

2 Jul 81

Financial Times: Association mooted for all LloydĂs members

OVER 100 of the 20,000 members of LloydĂs of London, the insurance market supported by a private membership, are trying to form a new association open to all members.

The move is seen as an attempt to crush a recently formed association under the chairmanship of Lady Janet Middleton and will cause a row within the LloydĂs market.

The Association of External Members of LloydĂs, led by Lady Middleton was formed earlier this year and sought. to represent the interests of the 16,000 members who do not work LloydĂs but commit their wealth to allow the market to function.

Major policy battles took place within the association and an attempt was made to unseat Lady Middleton as Chairman.

The association provoked violent hostility from underwriting agents at LloydĂs, who look after the affairs of all members within the market.

The agents felt that the emergence of Lady MiddletonĂs association, which has about 350 members, would usurp their function at LloydĂs.

The reaction of working members of LloydĂs to Lady MiddletonĂs association was so hostile that one meeting was infiltrated by members of LloydĂs who were not members of the association in an attempt to disrupt the associationĂs business.

The new association of Members of LloydĂs, will not he formed until at least 500 people have pledged their support to it. It is open to working and non-working members of LloydĂs.

The subscription required from members will he ˙15 per annum compared with an annual subscription of ˙50 to Lady MiddletonĂs association.

In a letter to member, ten representatives of the 100 supporters of the new association say that Lady Middleton sponsored a petition which led to major changes being called for in LloydĂs Bill of Parliament, for improving self regulation " against our wishes."

Members who initially supported Lady Middleton but are now seeking to create the new association say in the letter: "We made every effort open to us to divert her from this course but were unable to make our views prevail.

"We, and a substantial number of people who support us, believe that her association is unrepresentative and will only have a brief existence."

Lady Middleton said yesterday that her committee would write to members of her association urging them to remain loyal and members of the association.

About 70 members who had resigned had already been contacted, she said and in some cases had withdrawn their resignations.

Jul 81

Ernst & Whinney INSIGHT. Auditing Standards and Department of Trade Return: The auditing standard on "The Audit Report" only applies to "reports in which the auditor expresses an opinion on financial statements intended to give a true and fair view of the state of affairs, profit or loss and, where applicable, source and application of funds". As the new form of Department of Trade return specified by the Insurance Companies (Accounts and Statements) Regulations 1980 is required to "fairly state the information provided on the basis required by these Regulations" rather than to give a true and fair view, reference to our examination having been carried out in accordance with approved Auditing Standards should not appear in our report. However, an audit is nonetheless- being carried out, and it is therefore necessary to comply with the auditorĂs operational Standard and related Guidelines.

Intelligence:

  1. Loss Reserving Property/Casualty Insurance by Timothy M Peterson, Ernst & Whinney USA; ...
  2. The Insurance Directory and Year Book (Post Magazine Almanac 1980/81); ...

(g) A comprehensive library of insurance accounts and Department of Trade Returns for non-Ernst & Whinney clients is being built up.

3 Jul 81

New York Times: reported that "there are now approximately 12,000 asbestos-related claims in Federal and State Courts"; on 8 May 1981, the Asbestos Litigation Reporter reported that this is "involving perhaps 25,000 individual claimants". The number of such suits grows unabated, as victims or their families initiate approximately 500 new claims each month. On 9 November 1981, Business Week reported that "the number of claimants may reach 100,000 within the next few years".

10 Jul 81

Daily Telegraph: Reform of LloydĂs

THE PRIVATE BILL being promoted to improve the regulation of the LloydĂs insurance market is in danger of foundering. Those who criticise it outside and inside Parliament should reflect on the consequences. LloydĂs would have advertised to the world that its regulatory procedures were antique without having been able to reform them. International confidence in one of BritainĂs most important financial institutions would be bound to decline. There must, therefore, be compromise

The most difficult issue is whether or not the Council of LloydĂs should be granted immunity from actions for damages instituted by its own members. LloydĂs argues that its ruling council would not be able to intervene in the market to prevent abuse if it were vulnerable to financial penalties. Moreover as now drafted, the proposed immunity is narrow. Anybody outside the LloydĂs community could still sue. Underwriters and brokers would remain fully liable for all their actions. Members could take any form of legal action against their ruling council except a suit for damages.

Some Conservative MPs, however, with trades union legislation in mind, have seen that granting such privileges could be a dangerous precedent. No other comparable body has them. In particular the fact that the Stock Exchange manages without strongly suggests that the restraint of suit clause is not absolutely vital. LloydĂs should withdraw it.

This would be a second major concession by the promoters of the Bill for the committee of MPs examining it has already insisted, and LloydĂs has agreed, that insurance brokers must divest themselves of the ownership of underwriting agencies. Here is a natural extension of the general rule that brokers should not also act as principals. Even so some firms of brokers have continued to criticise the Bill, thus putting their own commercial interests before those of the insurance market as a whole and adding to the confusion that now envelops the proceedings.

The committee of MPs has also asked that LloydĂs should prohibit agents who manage the business of underwriting syndicates from managing the interests of members supplying the marketĂs capital. Yet the arguments for and against are technical; the public interest is scarcely involved. Nobody connected with LloydĂs has asked for such segregation. Established relationships would be upset for no obvious gain. On this point the Parliamentary committee should back down.

11 Jul 81

The Economist: Warning: Asbestosis may cost you more than money

"In the past two years, there has been a quintupling in the number of law suits in which Johns-Manville, once AmericaĂs biggest Asbestos producer, is named as Defendant. Law suits against Keene Corporation have risen ten fold... Auditors Coopers & Lybrand qualified both the 1979 and 1980 accounts of Johns-Manville because of the potential liability from law suits. The 1980 accounts of Raybestos-Manhattan were also qualified, and some other asbestos companies must expect the same treatment in future. There are roughly 25,000 cases against asbestos companies pending in the American Courts... The Industry is now desperately worried because some courts are awarding punitive damages - in effect, saying that asbestos companies wilfully did not do enough to protect workers against the hazards of asbestos... Some believe that legislation will be needed if great chunks of American industry are not to go bankrupt.

12 Jul 81

The Environmental Protection Agency (EPA) had issued prior regulations which came into effect requiring evidence of financial responsibility for pollution claims arising from both sudden and

accidental occurrences and non-sudden and accidental occurrences.

17 Jul 81

Extraordinary General Meeting of Members of LloydĂs.

18 Jul 81

Financial Times: LloydĂs objection threatens Bill

LLOYDĂS of London ,the insurance market, will not be able to adopt a key provision required by a House of Commons committee for inclusion in its private Bill of Parliament. Nearly 14,000 underwriting members have voted against a Commons committee ruling.

As a result. the Bill for improving self-regulation - LloydĂs first major legislative changes in over 100 years - may fail .

By a majority of 13,743 to 707 votes, underwriting members have rejected a Commons committee requirement that underwriting managing agents, the groups which run syndicates at LloydĂs, should not be able to introduce members to those syndicates.

LloydĂs will formerly inform the Commons committee, chaired by Mr Michael Meacher MP, on Monday about the vote. The committee may then decide not to report the Bill for its next Readings.

LloydĂs clash with Parliament is over conflicts of interest. The Commons committee has told LloydĂs that brokers the buyers of insurance on behalf of clients, should not own underwriters the sellers of insurance. Divestment of the interests should take place over five years.

The committee also ruled that those groups which run underwriting syndicates - the managing agents - should be precluded from acting as membersĂ agents, the groups which introduce those members to the syndicates. In LloydĂs this is known as the " divorce " issue.

LloydĂs reluctantly accepted the committeeĂs ruling on divestment and advised its members to vote in favour. Out of the 19,136 members of LloydĂs who could have voted the market received 14,633 ballot papers by yesterday, the close of the vote. Only 69 papers were invalid. But the market was unhappy with the " divorce " proposal.

Some 13,511 votes were cast in favour of divestment, while only 1,013 votes were cast against. Heavy lobbying by sectional interests ensured that the " divorce " proposal was rejected.

Before the poll closed yesterday Mr Peter Green, chairman of LloydĂs, addressed an extraordinary general meeting of members attended by nearly 2,000 LloydĂs members.

LloydĂs met its advisers yesterday to consider its future tactics before the Commons committee.

20 Jul 81

LloydĂs by their Counsel, Mr Boydell, gave an undertaking to the Parliamentary Committee, chaired by Mr Michael Meacher, MP, that it would "take all reasonable (proper) steps to ensure that the recommendations in paragraphs 9.15 and 23.22 of the Fisher Report as to the availability of information are implemented by the Council, whether through the making of Byelaws or otherwise, as soon as possible and in the event within two years of Royal Assent". At the request of the Chairman of the Committee, Mr Michael Meacher, that undertaking was extended to the recommendations contained in paragraphs 10.29 to 10.31 of the Fisher Report.

20 Jul 81

Financial Times: LloydĂs Bill may fail over refusal to make changes

LLOYD S of London will tell a commons committee today that it cannot amend its Bill as the committee has suggested.

As a result the Bill, the first major piece of legislation promoted by the LloydĂs insurance market for more than 100 years, may fail.

The marketĂs membership of more than 19,000 voted on Friday in favour of a recommendation requiring the divestment of brokers from their underwriting interests.

But it voted overwhelmingly against a requirement that managing agents, the groups which run underwriting syndicates, should be precluded from acting as membersĂ agents.

MembersĂ agents find members for the market, introduce them to syndicates and manage the membersĂ affairs.

Attempts have been made since FridayĂs vote by two underwriting members, Mr Nick Parker and Mr John Burrows, whose petition to Parliament prompted the committeeĂs recommendations, to find a compromise.

In an effort to save the Bill, they may relent on insisting that there should be a separation of managing agencies from membersĂ agency work.

In return they may seek tighter wording on a legal immunity clause which would protect a LloydĂs council from damage suits for negligence.

In addition they are likely to seek a single electoral for the new Council. At present the legislation proposes that the electorate should be segregated into working members and external :members.

The external members, who do not work in the market but who put up their capital, would

elect their own representatives to the Council and so would the working members. The petitioners want a single electorate for elections rather than a segregated one.

21 Jul 81

Daily Mail: LloydĂs Bill will fight another day

A LAST-MINUTE truce between the establishment at LloydĂs and the Insurance marketĂs guerrillas has rescued the LloydĂs Bill, now before Parliament.

But though still alive the Bill is not yet safe - the truce is uneasy, and sniping will resume in the autumn, from more sides than one.

Yesterday the Parliamentary Committee in charge of the Bill dropped its insistence the idea of ŠdivorceĂ - separating membersĂ agents from managing agents. LloydĂs own committee, backed by an overwhelming vote from their members, had made this a sticking point.

At Westminster yesterday the ŠpetitionersĂ - those within LloydĂs who have opposed the Bill in its present form - joined in asking for divorce to be dropped. This followed a secret meeting * on Friday between LloydĂs chairman Peter Green and Malcolm Pearson, who has backed the petitioners.

(* Plus Ian Posgate, and with the agreement of the Petitioners)

Mr Pearson would have liked more protection for LloydĂs members to have been written into the Bill - giving them full information about the people in charge of their business, and setting up procedures for audits.

LloydĂs yesterday promised Parliament to ensure this, and to review the relationship between membersĂ agents and brokers.

The Bill now goes forward in Committee, and, and must then have its third reading, both in the Commons and in the Lords. Mr Pearson and his allies will attack the clause which gives the new council of LloydĂs legal immunity against being sued by people in the market.

Delaying tactics

Meanwhile, a number of major brokers and underwriting agents will attack from the other flank. They dislike the idea of ŠdivestmentĂ, now written into the Bill - that is, splitting off the brokers from the underwriters.

They will never persuade the Parliamentary Committee to change its mind on this - especially since LloydĂs members have voted in favour of divestment. But they can hope to delay and divert the Bill amid the shifting sandbanks of Parliamentary procedure, until it founders.

22 Jul 81

Bankers Trust Co. -v- Hartford Accident & Indemnity Co., 518 F. Supp. 371 (S.D. New York, 22 July 1981. Vacated on rehearing, 621 F. Supp. 685, 4 November 1981. Court rejected insurers "owned property" exclusion defence to coverage for an environmental claim. Insurer was obligated as a matter of law under policy providing coverage for damage to third party property to pay for work done on premises of insuredsĂ property where it was undisputed that if preventive work had not been done, oil would continue to prevent third partyĂs use of own property, and reasonable result was to prevent further oil seepage.

Jul 81

Following a breakdown of merger negotiations with Sedgwicks, Alexander & Alexander Inc. open negotiations with Alexander Howden.

31 Jul 81

Winchester Bowring placed an unlimited xs $1.25m run-off reinsurance for R Ballantyne, Underwriter of the Sedgwick Forbes Non-Marine Syndicate 47 to incept at 1 January 1981 covering the 1973 and prior years with Merrett. In 1985 , the Ballantyne Non-Marine Syndicate 47 was party to the Wellington Agreement, indicating a long tail asbestosis involvement. R Ballantyne was on the Committee of LloydĂs from 1985 to 1987, and was on the Committee of the LloydĂs Non-Marine UnderwritersĂ Association (LUNMA).

Jul 81

Letter number ... from Attorneys to the insurers at interest. Assured:

There have been several noteworthy developments in this litigation since our previous report.

Aug 81

Winchester Bowring again approached R H M Outhwaite for an unlimited run-off quotation for the Wrightson Non-Marine Syndicate 90. The reinsurers now had the benefit of a Time & Distance policy placed with NERCO.

Aug 81

Telex from Ayliffe to Attorneys Re: reserves on asbestos cases. The working party are now considering the reserve philosophy to be adopted for the coming year end in regard to all the accounts which come direct to London Market and it is our intention to now adopt a reserve per case for each assured based upon average cost of settlements achieved to date plus loading to take care of inflationary trends.

10 Aug 81

Meeting of the Asbestosis Working Party together with solicitors Elborne Mitchell. Present C J Ayliffe.

  1. The Chairman reported that Mr Ayliffe had asked for a Working Party Meeting every week. After some discussion it was agreed that the present arrangement would continue, i.e. a meeting should only be called if requested by a member of the Working Party by Thursday of the previous week. However, in future, there would not be more than two weeks between meetings. ...

(d) Elborne Mitchell reported that, in response to a request by the Chairman, t hey had now obtained copies of all the slips in respect of GAF Ruberoid and Owens Corning. They had not been able to obtain the slips for US Gypsum since the brokers were having difficulty in finding some of them.

3. Reports to the Market: Mr Ayliffe said that a great deal of information was coming to the Leading Underwriters in respect of Asbestosis claims and a central store of this information was required. Mr Ayliffe said that general reports were shown to the Market by the brokers. However any reports of a delicate nature would be reviewed by Elborne Mitchell prior to a decision as to their release to the Market. ..

  1. .... Database and Loss Reserves. The Working Party agreed that the above figures should be put into the Database as the basis for future reserves . Mr Continanza pointed out that the reserve figures produced by the Database would be on the basis of known Claims only. Mr Maitland emphasised the need to have an estimate of outstanding liabilities for every year of each account. Mr Ayliffe said that the Database would produce figures showing the trend of payments at the end of each quarter. Further, the Database would produce figures which would permit Underwriters to check reinsurance claims coming to London....
  2. US Gypsum: Mr Ayliffe said that the brokers could not find the Slips for the years 1949-1954 for this Assured although US Gypsum held cover notes stating that 100% coverage was placed in the London Market. US Gypsum have 900 claims.

14 Aug 81

Eagle Picher -v- Liberty Mutual Insurance Co, (case No. 78-2739-2) District Court of Massachusetts concluded that "application of general rules of insurance policy construction, with their public policy underpinnings," "dictate" that insurance coverage is triggered when the disease becomes diagnosable, i.e. the manifestation interpretation. The asbestos producer had no insurance coverage during the period when he was marketing the harmful asbestos products, but he had coverage for the following period of time when the asbestos-related lung diseases became apparent. In this case, the insurer pleaded the exposure theory. The court decided against him and relied on the manifestation theory.

18 Aug 81

A stop loss $3,200,000 xs $5,145,401 reinsurance placed for the Desert Insurance Company to incept at 31 December 1981 covering the 1971 - 1981 years. Outhwaite 317/661 wrote 9.9%.

20 Aug 81

A run-off reinsurance placed for English and American, a Bowring captive insurance company, relating to claims paid after 1 July 1980 and to cover the difference between premiums and claims prior to 31 December 1977 in respect of six agencies, relating only to Marine, Time and Cargo. Outhwaite wrote a line.

24 Aug 81

An unlimited xs $12m run-off reinsurance placed for M H Cockell, Underwriter of the Willis Faber Non-Marine Syndicate 570, 347 to incept at 1 January 1980 covering 1970 and all prior years. The Outhwaite Non-Marine Syndicate 317/661 wrote 100%. In 1985 the following bureau signing numbers 570, 347 were party to the Wellington Agreement, indicating a long tail asbestosis involvement.. M H Cockell was on the Committee of LloydĂs from 1984 to 1987 and 1990 to 1993, being a Deputy Chairman in 1986

26 Aug 81

An unlimited xs $330,000 run-off reinsurance placed for J S Birrell, Underwriter of the C T Bowring Non-Marine Syndicate 27 to incept at 1 January 1981 covering 1975 and prior years. Outhwaite wrote 100%.

81

Responsible members of the economic community have began to evaluate the effects of asbestos-related litigation upon the insurance industry, the asbestos industry, and the United States economy. The book value net worth of the approximately 51 insurance companies involved in asbestos-related litigation is approximately $9-7bn and that of all asbestos companies is approximately $25-6bn (derived from Forms 10-K filed by publicly-held companies with the Securities and Exchange Commission). The present best projections of liability for the next twenty years for asbestos-related deaths of asbestos workers alone is approximately $38bn, in 1981 dollars, on loss of life up to the year 2000. The figures do not include sums for claims for disability not resulting in death, nor do they include persons not asbestos workers, who are nevertheless exposed to asbestos. The probability of a claim arising from an asbestos-related death is based upon projections of data developed by P Barth: "Compensation for Asbestos-Associated Diseases: A Survey of Asbestos Insulation Workers in the U.S. and Canada" unpublished study produced for the U.S. Department of Labor in 1981; and "Employment Standards Administration, the U.S. Department of Labor, Black Lung Benefits Act, Annual Report on Administration of the Act During Calendar Year 1979" (1980). The average amount of liability for each such death is based upon "Proceedings of the World Health Organisation Expert Committee on Cancer Statistics", issued in June 1978; Sciotto & Chiazze, "Cancer Prevalence and Hospital Payments", 59 Journal National Cancer Institute, 345 issued in 1977; Johnson & Heller: "The Economic Consequences of Asbestos-Associated Occupational Disease" unpublished study produced for the U.S. Department of Labor in 1981. These estimates do not include litigation expenses.

0 Sept 81

Business Insurance:

The fear of punitive damages, as well as the fear of setting unfavourable precedents was one of the reasons insurers frequently chose to settle out of court and chose very carefully those cases which they took the risk of taking to trial.

These points were put forcibly by a "spokesman for the insurance industry, a Mr. P D Shea, the supervising examiner for the asbestos unit at Liberty Mutual as reported in the September 1981 issue of Business Insurance: "trying the right cases and efficiently disposing. As a result a "discussion paper" has emerged which those Underwriters who have signed it intend to use as a basis for discussion with their re-assureds at the time of the renewal of their programmes. A copy of this paper is enclosed for your information. Discussion document: ... the potential for losses arising from asbestos products has been known for some time and obviously will continue to be dealt with by the insurance industry for many years to come. The same latent disease characteristics, in some degree or another, are unfortunately common to many elements, compounds, chemical mixtures and products..... [These were subsequently termed "The Asbestos White Papers of 1981".]

25 Sep 81

Eagle Picher -v- Liberty Mutual Insurance Co, (case No. 81- 1761-63) court of Appeals 1st Circuit Massachusetts. Appeals docketed

30 Sep 81

The computer leasing loss is forecast at U.S. $444m, the Loss Report being prepared by UnderwritersĂ AttorneysĂ, Lord Day & Lord in New York and Elborne Mitchell & Co in London.

1 Oct 81

Keene Corp. -v- I.N.A, (Case No. 81-1179) in the District of Columbia, Court of Appeals. Judgement and opinion re-defined, which adopted a third interpretation of comparable contract language. Without regard to the 2 November 1959 through 30 December 1961 time period in which Keene carried no applicable insurance coverage, the D.C. Circuit declared that the insured should be "free of all liability for asbestos-related disease". Having so concluded, the court turned to pertinent state law to find that "potentially applicable state laws do not differ from one another". The D.C. Circuit thereupon concluded that coverage liability under the policy provisions commenced not only upon manifestation of asbestos-related disease, but also upon and during "inhalation exposure and exposure in residence." The court established joint and several insurer indemnification responsibility for each insurer on the risk at any time from a claimantĂs initial exposure to respirable asbestos to the time, if any, that asbestos-related disease becomes manifest. This established the "triple trigger". On 12 October, the court ruled that the manufacturer may choose which policy to assign to a particular claim.

1 Oct 81

Keene Corp. - v- I.N.A, 513 F. Supp. 47, District of Columbia Circuit Court , 30 January 1981. Revised 667 F.2d 1034, District of Columbia Circuit Court, 1 October 1981. Cert. denied, 455 U.S. 1007, 8 March 1982. Rehearing denied, 456 U.S. 951, 26 April 1982. District Court applied exposure theory to trigger coverage. District of Columbia Circuit Court of Appeals applied the triple/continuous trigger of coverage and found a duty to defend and coverage for the over 6000 asbestos bodily injury suits against the insured. Court held that "INAĂs duty to defend Keene in underlying asbestos cases ceases upon the exhaustion of indemnity limits under the pre-1966 policies in question". Court found unambiguous policy language specifically limiting KeeneĂs duty to defend any suit "with respect to such insurance as is provided by the policy".

Oct 81

LloydĂs Newsletter No 3 on the progress of the LloydĂs Bill, with comments by the Rt. Hon. Graham Page and Mr Peter Miller, forwarded to members of LloydĂs.

7 Oct 81

Letter from Peter Green to a Name

Thank you very much for coming to see me yesterday and I feel that we have made some real progress on trying to resolve the ŠRestraint on SuitĂ problem. I believe that we have a considerable measure of accord now in the areas in which the Council or Committee of LloydĂs need protection but the problem remains of finding the necessary legal language to interpret what we both mean. With good-will and hard work, I hope that the necessary wording can be found.

15 Oct 81

Pagoda Indemnity Ltd incorporated in Guernsey by Carey, Langlois, advocates. The company is managed by Interco Services Ltd, a company within the Horlock & Co stable (accountants). The nominal capital is ˙100,000 divided into ˙1 shares. 99,993 shares are held by Pagoda Insurance Company, located on 22nd Floor, Princes Building, Hong Kong.

Merrett syndicate loss review report

Apart from the Run-Off Contracts, there is a number of other contracts forming part of the "special situations" account which did not benefit from Syndicate 421's reinsurance programme. One of these was the aggregate personal stop loss reinsurance policy ("the Personal Stop Loss Contract") written for the 1982 year of account in respect of Pagoda Indemnity Limited ("Pagoda"), which was transferred by way of the RITC into the 1983 year of account. For the purpose of Table I, the Committee assumed that ˙45,000 was paid in respect of the 1982 RITC (being the amount Syndicate 421 Names for 1982 originally received for writing the contract).

Pagoda, a company incorporated in Guernsey<, wrote the personal stop loss for Names whose members' agency was Donner Underwriting Agencies Limited. The original limit for each Name was ˙100,000 in the aggregate any one loss any one member in respect of the 1982 year of account, such amount to be excess of:

  • 10% of the allocated premium income limit per member not exceeding ˙20,000; or
  • the maximum tax recovery per member whichever is the greater: all as more fully described in the original policy).

Pagoda had a potential exposure of ˙24.7 million (being the 247 policies issued at ˙100,000 per policy.

Syndicates 417 and 421 underwrote an aggregate excess reinsurance treaty in respect of the 247 policies issued by Pagoda to cover all losses in excess of ˙50,000 in the aggregate; the premium of ˙225,000 being allocated 80% to 417 and 20% to 421. The syndicates had therefore accepted a total exposure of ˙24.63 million (comprising the ˙24.7 million less the ˙50.000 excess) of which Syndicate 421Ăs share was ˙4.93 million. In order to protect Syndicates 417 and 421, joint reinsurance was purchased for ˙1 million excess of ˙1 million in the aggregate, ˙3 million excess of ˙2 million in the aggregate and ˙5 million excess of ˙10 million in the aggregate. The first layer was placed 83.33%, the second layer was placed 92.15% and the third layer was placed 100%; in other words, 16.67% of the first layer was uninsured and 7.85% of the second layer was uninsured. The aggregate reinsurance premium for the three layers was approximately ˙105,000, of which some ˙21,000 was applicable to Syndicate 421.

Thirty seven Names insured by Pagoda were on Outhwaite Syndicate 317/661 which left its 1982 year of account open due, it is understood, largely to uncertainties in respect of run-off contracts which it had written. In addition, 196 Names insured by Pagoda, were on syndicates formerly managed by Posgate and Denby. Claims arising from these and other open syndicates caused Names to generate substantial claims on their personal stop loss policies and hence on the aggregate reinsurance cover issued by Syndicates 417 and 421. At 31 December 1990, claims on the Personal Stop Loss Contract were expected to exceed ˙10 million of which Syndicate 421's share was ˙2 million, the next ˙5 million of claims being recoverable from reinsurers.

Syndicate 421's net loss at 31 December 1990, after taking credit for the specific reinsurance referred to above, was ˙1,235,000 calculated as follows:

 

˙000's

 

Initial retention of ˙1,000,000 @ 20%

200

 

"Retention" on 1st layer: ˙1m @ 16.67% @ 20%

33

 

"Retention" on 2nd layer: ˙3m @ 7.85% @ 20%

47

 

"Retention" between 2nd and 3rd layers: ˙5m @ 20%

1,000

 
 

1,280*

 

Assumed reinsurance to close premium received by 1983 year of account Cumulative loss to 31 December 1990

( 45)

 
 

1,235

 

*Being:

   
 

Paid losses

915

 

IBNR

365

   

1,280

The loss ratio for the Personal Stop Loss Contract at 31 December 1990 was 5,315%.

Macmillan Syndicate 80/568 and 843/698 Loss Review Report

For the 1984 year of account Holman Wade used an estimated deterioration of 500 per cent on syndicate 553 (Warrilow), when determining the reserves for the main Holman Wade and Kingsley Carritt line slips. When Octavian came to reserve the Pagoda policy, which was particularly sensitive to syndicate 553, an estimated deterioration of just 100 per cent was used. I understand that Octavian adopted this approach because they believed that a deterioration of 100 per cent was a more accurate reflection of the likely outcome. They also knew that the contract was highly sensitive to syndicate 553 (unlike the Holman Wade line slips), and so it was more appropriate to use a figure which reflected their opinion of the final result A reserve of ˙94,727 for Syndicate 80/568 and ˙63,183 for Syndicate 843/698 was therefore created for the 1984 pure year of account.

Very little was known by Octavian about this contract despite making enquiries of the broker. When setting the reserves for this contract as at 31 December 1990 it was believed that the Syndicates only had an exposure in respect of the 1984 year of account. However, the Syndicates had received claims on at least one other year which was thought to be the 1985 year of account.

As a result of the lack of information, the reserve set a year previously, for the 1984 year of account of ˙94,727 for Syndicate 80/568 and ˙63,183 for Syndicate 843/698, was maintained. The same reserves for each Syndicate were also created for the 1985 year of account. However, as a result of an addition error the reserves created for the 1984 year pure year of account were not included in the total PSI, reserves shown in the Syndicates' reports and accounts as at 31 December 1992.

Mr Macmillan included PSL business in a voyage account classification. He therefore applied the voyage audit minimum loading of 3 per cent of premium income.

20 Oct 81

Letter from Hady Wakefield, Chief Executive of North American Non-Marine Reinsurance Division of C T Bowring Reinsurance to the FiremanĂs Fund in relation to the Rokeby-Johnson Sturge run-off stating.

I rang you some time ago and told you that Dick Outhwaite of R.H.M. Outhwaite and Others had quoted a price of $10,250,000 for a policy to pay all your losses on the Sturge run-off excess of $35,000,000 to you.

I also said to you that there would be a number of "nuts and bolts" to put together because Outhwaite wanted $5,000,000 to work to his benefit without going through his books as such.

This is what we have now achieved and, in principle, Dick OuthwaiteĂs price remains $10,250,000, although there are two slips involved, one with a premium of $5,000,000 and another one with a premium of $5,250,000.

You will appreciate that the risk taken by these reinsurers (NERCO) is that the claims settlement pattern will accelerate and the deductible of $40m will be penetrated earlier than mathematically looks likely. Should the asbestosis losses begin to settle with any degree of rapidity or consistency, I would suggest that that this is a very real contingent.

(Hady Wakefield explained to the LloydĂs Syndicate 421 Loss Review Committee that he was not surprised at the Committee expressing interest in the paragraphs quoted above and accepted that the choice of words was "unfortunate". He explained that reference to "$5,000,000 to work to his benefit [i.e. to the syndicates subscribing to the slip] without going through his books as such" was a clumsy description of the NERCO policy which was purchased by FiremanĂs Fund and which inured to the benefit of LloydĂs underwriters.)

27 Oct 81

An Unlimited xs $16,000,000 run-off reinsurance placed for D A Beaumont, Underwriter of Marine Syndicate 448 Incidental Non-Marine Syndicate 620 managed by Willis, Faber & Dumas Agencies to incept at 1 January 1981 covering 1978 and prior years. Outhwaite Non-Marine Syndicate 317/661 wrote 100%.

28 Oct 81

Mendes & Mount telex advice that Owens Corning Fibreglass has recently been reported as having exhausted its primary domestic insurance with the result that claims will shortly be presented to interested underwriters in London.

2 Nov 81

Business Insurance: Keene case concerns London Insurers

2 Nov 81

The Commercial Union filed a declaratory judgement proceeding against Pittsburgh Corning and the Travelers in the U.S. District Court, for the Eastern District of Pennsylvania, also joining as defendants PPG Industries, the Insurance Co. of North America, and American Motorists (Kemper). On 2 November 1981, the trial judge entered an Order on Pittsburgh CorningĂs .

Motions for Partial Summary Judgement adopting a straight exposure concept as set forth in the case of INA -v- Forty-Eight, and in addition held that the primary insurer, the Travelers, is bound to continue to defend the assured under the pre-1966 policy language, which did not circumscribe defence obligation to policy limits. The courtĂs language was as follows:-

"Pittsburgh CorningĂs Motion Šor Partial Summary Judgement against Travelers Insurance is GRANTED on the ground that the insurerĂs defence obligations are ambiguous and that, under Pennsylvania law, ambiguous insurance contracts must be strictly construed against the insurer.

Pittsburgh CorningĂs and PPG IndustriesĂ motions for summary judgement against Commercial Union are GRANTED.

I take notice of the indisputable Scientific fact that cumulative physical damage resulting from asbestos inhalation occurs prior to manifestation. As a matter of law, such exposure is a covered occurrence during the policy period which results in injury. At a minimum, the policy language is ambiguous, and must be construed against the insurer."

4 Nov 81

General Meeting of Members of LloydĂs: Statement by Mr Peter Green, Chairman

The security behind a LloydĂs policy has, from the earliest days, been one of your CommitteeĂs most important responsibilities, a fact which is reflected in the Acts and bye-laws under which our Society is governed. Security, however, is not something which can be dealt with on a once and for all basis; like freedom it demands eternal vigilance and never more so than when, as now, the market is under severe pressure.

A world-wide surplus of capacity has meant that both insurance and reinsurance has become easily and cheaply available and while not a problem in itself, this has depressed rates. In addition, the scramble to underwrite every reinsurance or retrocession on offer is in danger of promoting an over-reliance on that sector of our business which is intended primarily as a safety net. The great majority of firms operating in the reinsurance field are, of course, above reproach but, attracted by the prospect of a quick profit, which often turns out to be illusory, a fringe element has developed whose security is perhaps open to question. Since public confidence in our industry could be seriously dented by the domino effect of a major reinsurance failure, we would do well to remind ourselves and others that reinsurance does not constitute a transfer of responsibility and therefore procrastination by reinsurers must not be allowed to delay the payment of valid claims to the original policyholders.

The Audit committee has been examining the reinsurance regulations which apply for annual audit purposes and its recommendations will be put to your Committee in the near future. The Committee also plans to introduce at the 31st December a centralised scheme which will list all the NamesĂ various funds at LloydĂs with the exception, initially, of personal reserves, thus facilitating the matching of MembersĂ underwriting liabilities with their allowable assets held at LloydĂs. This is the first step towards simplifying the annual audit which, with the growth in membership and the tendency of Names to join more syndicates, has become increasingly difficult to co-ordinate. In order that it will be fully operative by the next audit, the closest co-operation between Underwriting Agents, Panel Auditors and the relevant Corporation departments will be required.

Meanwhile, it is encouraging to note that LloydĂs underwriters who, in common with the insurance companies, are bound by the Department of Trade to furnish an annual statement of solvency showed, in the latest returns, assets in excess of five times the stipulated margin.

But security, however inviolate, is of little consolation to the policyholder unless it is allied to the prompt settlement of claims and I have, as you will recall, had cause at previous General Meetings to refer to the speed at which monies pass between underwriters and their insureds.

As far as claims are concerned, an all market working party was set up in July charged with the task of reviewing existing procedures and, where necessary, to recommend change. The working party under the chairmanship of Mr Charles Gibb set an excellent example in completing its initial report with commendable dispatch and as many of you will know, your Committee is now in the process of obtaining the views of the Market Associations before deciding how and which proposals might best be implemented. Inevitably, the search for improvement will affect a number of practices but I hope and believe that whatever action is taken it will redound to the immediate benefit of our policyholders and the long-term reputation of the LloydĂs market as a whole.

In speaking of the speed with which monies pass between underwriters and insureds I chose my words deliberately since it is a two-way traffic including as it does both premiums and claims with the broker in each case acting as an intermediary. Thus, broker co-operation is again central to the work currently being done by the Terms of Credit Committee under Mr Charles Skey, supported from the Committee of LloydĂs by Mr Stephen Merrett. It is obviously impossible to change the habits of generations overnight but there is no doubt that, given goodwill, determination to identify the problem areas and then a willingness to find an acceptable solution, the problems can be resolved and I am confirmed in this view by the latest statistics on the timely payment of premiums which, I am pleased to say, show considerable progress in all markets over the last twelve months.

Clearly a great many factors contribute to the integrity of a LloydĂs policy but LloydĂs membership requirements must, of necessity, be the most fundamental. For this reason the rules and requirements are continuously being examined and among the alterations soon to be advised is one relating to new Names and which is worthy of special mention.

Until now it has been possible for members to include, in their qualifying means, property in which they reside - although the extent to which property could be included has varied considerably over the years. However, the Law relating to property has changed and the rights of parties, other than the owner, living in the property have increased, so that it is no longer certain that the property can be sold freely if this becomes necessary to help meet underwriting losses. The Committee has, therefore, reluctantly decided that in future the private residence or the principal residence, if the Name owns more than one, may not be included in qualifying means, although it may now rank as good collateral for bank guarantees and letters of credit. The new ruling will apply to Members who are elected to commence underwriting from 1st January 1983 and for existing Members changing their underwriting arrangements after the 1st January 1982, for example, in connection with a higher premium limit. How the rule will apply to all other Members is just one of the many questions which the Council once it is in being will have to decide.

There have been reports in the press lately concerning the production of a league table of underwriting performance. I consider that unless these tables have all the facts, including underwriting policy, they can be seriously misleading.

The number of applicants currently going forward for election as Underwriting Members of LloydĂs is approximately 1,400 compared with 880 in 1980 and 1,492 in 1979. Allowing for deaths and resignations, the total number of Members as at 1st January, 1982, is expected to exceed 20,000 - an increase of about 5% over the previous year.

With a membership exceeding 20,000 it is increasingly important that we improve our record keeping systems in order that we may react quickly upon regulatory matters and so that we can provide the required level of service for Members and their Underwriting Agents. The development of computer based systems to handle information about Members, their underwriting allocations, their deposits and reserves is therefore being progressed as quickly as possible. A data base of information about Members is already in existence and it is our intention initially to make this available to selected Underwriting Agents through terminal links for demonstration purposes.

The agenda to be placed before the new Council is likely to be a long one as, following the Fisher Report, twenty-one task groups were set up to make a detailed study of the various issues that had been raised by the Report. There has, I know, been some misapprehension about these task groups whose membership is drawn not only from the Committee of LloydĂs but also from the Market and Corporation staff.

Fisher as you know made many recommendations for the better self-regulation of our affairs. Reviewing the statutory rules and bye-laws by which we are governed today is relatively simple as they are so few. Reviewing the practices and instructions by which we carry out our business is an entirely different matter. This involves detailed and lengthy research into the proceedings of the Committee of LloydĂs, the files of the Corporation departments, the records of the Market Associations and the reports of the many internal working parties that over the last one hundred years have investigated various aspects of our activities. Thus, the first task of these various groups was to research and bring together our past and present regulations. The next step is to study them and finally to recommend how they can be improved and adapted to meet our present and future responsibilities for self-regulation. These task groups will be submitting their findings over the next few weeks. Their reports, which are consultative documents, will be studied by the Committee of LloydĂs and discussed with the Associations. Not until this has been done will the new bye-laws and regulations required for the better ordering of our business be brought before the Council. There will be many instances where the Committee under our present procedures is able to take action and this, of course, will be done. I would also like to assure you that your Committee is ever mindful and cognisant of the freedom and enterprise on which LloydĂs was built and which it is so necessary to foster if we are to maintain and strengthen our unique position and reputation. Whilst we need better and easily understood disciplines and rules to govern our business, we have no desire or intention to tie ourselves down with red tape.

Since we last met in June there have been several developments on the Parliamentary front some of which I have already explained in writing. You will, I am sure, have read with sadness of the death of Sir Graham Page our sponsor in the Commons. His great knowledge of Parliamentary affairs, his natural calm and his capacity for hard work, had earned our respect and gratitude and we greatly regret his passing. Obviously a man like Sir Graham will be difficult to follow but in Mr Anthony Grant, who has kindly agreed to take over the responsibilities of our Parliamentary sponsor, we have a worthy champion.

In July we held a ballot on the issues of divestment and divorce. There were 13,511 votes in favour of your Committee promoting an additional provision on divestment and 1,013 votes against. On divorce, however, the vote was reversed with 13,743 votes against and 707 in favour.

Taking note of your wishes, the Parliamentary Committee chaired by Mr Michael Meacher duly accepted our undertaking to promote the additional provision on divestment. At the same time he agreed to drop the divorce issue on our undertaking to have a thorough investigation into all aspects of the underwriting agency system at LloydĂs, and also to use our best endeavours to ensure that the new Council will implement the Fisher recommendations on the provision of information to Members of LloydĂs as well as to candidates for membership. We have already started to fulfil those undertakings.

The additional provision containing the divestment clauses has now been advertised and we hope to return to the Parliamentary Committee later this month.

In the recent Government re-shuffle, a member of our Parliamentary Committee, Mr Nicholas Scott, MP, was given a Government appointment in the Northern Ireland Office which means that he automatically comes off the LloydĂs Bill Committee. We would, naturally, like to think that the Committee would soon report the Bill but a replacement may, nevertheless, have to be found for Mr Scott in the meantime.

Quite by chance Parliament re-assembles today and although we expect the Bill will soon resume its passage we do not envisage it leaving the Commons and going to the Lords until after the New Year with, we hope, the Royal Assent coming sometime during the early summer. That being so, the new Council might hold its first meeting about this time next year.

The negotiations on freedom of services in the EEC are proving to be long and difficult. It is, of course, not only a question of getting a directive. We want to see a good directive which will enable business to be done on better terms better both for us and for our customers -than has been possible in the past. A bad directive would be worse than no directive. Our industrial customers have said they want the same thing. The principal obstacle is bureaucratic over-regulation. We are in almost daily contact with the B.I.A., the brokers and with the Department of Trade, who understand our objectives and are pursuing them. We call upon those governments which have been blocking progress to move with the times, recognise their responsibilities under the Treaty of Rome and allow European insurers to play their rightful role in the world markets.

I now turn from constitutional matters to those of an executive nature or, as one of my predecessorĂs was wont to say Šminding the coffee houseĂ. To oversee this function Policy Boards, consisting of representatives of the Market, the Committee and senior staff, have been established for each major activity of the Corporation of LloydĂs. Their remit is to establish policy, monitor the services provided, approve the annual budget and supervise expenditure against that budget. The closer relationship being built-up between the Market and the permanent staff will, it is hoped, ensure that the Corporation is, more than ever, responsive to the needs of underwriters and brokers in their day to day business.

The watchwords at present being cost effectiveness, I am pleased to report that the Corporation departments, who were asked by senior management to reduce through natural wastage staff numbers by 5% during 1981, had reached their target by mid-October. These reductions and other economies have, so far, helped to keep the CorporationĂs operating costs at less than the budget of 12. 5% above the 1980 figure, an excellent performance bearing in mind the increased workload in a number of areas, of which LloydĂs UnderwritersĂ Claims and Recoveries Office, Management Services and LloydĂs Policy Signing Office are typical examples of the contribution made by all the Corporation departments. It is not only staffing levels where economies have been effected but across the whole range of the CorporationĂs activities including purchasing, catering and Room services.

I should like, if I may, to express on your behalf our appreciation of the way in which members of the Policy Boards and particularly the Corporation staff have risen to the challenge of the last few years. I am confident that we shall come through this transitional period to emerge a stronger and more competitive market due, in no small measure, to the team effort which is now a feature of our administration.

These are some of the steps which we have been taking in order to achieve economies. The practical demonstration of our success is, I am delighted to say, that the rate of subscriptions for 1982 will be held at the 1981 level. In arriving at this decision, full account has been taken of anticipated expenditure in 1982 and our preliminary budget figures indicate that we can meet the CorporationĂs operating costs for 1982 from the projected revenue without the increase in subscriptions from 0.6% to 0.65% of allocated premium income that I warned you twelve months ago would be needed.

Saving at the expense of efficiency can, however, prove a false economy and should it become necessary to engage additional staff in order to maintain standards or to satisfy a special need, your Committee will not hesitate to do so. A case in point is the Legal Department which was created some eighteen months ago. During that time it has, in conjunction with outside lawyers, assisted your Committee in various disciplinary matters and in preparation for the enactment of the LloydĂs Bill. It has also aided Corporation departments through the provision of advice and the drafting of legal documents.

Another example, this time drawing almost entirely on existing resources, is the new Systems and Communications Policy Board which is designed to oversee the use of information handling technologies. In order to be effective it will need to involve all interested parties in the LloydĂs Community, the aim being compatibility of all forms of computing and other electronic equipment. To this end a general assessment of Market systems is already under way, and from this a long term strategy will be developed.

At the November general meeting last year, I advised you that this year we would be collecting from the 1980 membership an additional subscription of 0.3% of allocated premium income to provide funds to meet the settlement of the Sasse litigation. I also warned that there might haveĂ to be further calls made on the 1980 Members. Although the final position is not yet known and there are still considerable uncertainties, there will not be an additional levy in 1982. Should there be a deterioration, a further subscription might be needed in 1983, but again only for the 1980 Members.

There is, as many of us know to our cost, nothing static about computers or indeed their programs and so it is with some satisfaction that I can report that the re-design of the Central Accounting system has continued smoothly, the major part being replaced in August and September without a break in routine work. This project has, for some years, taken the lionĂs share of our data processing capability but results are now beginning to show and behind the scenes a very large data base has been built up to provide still greater flexibility in the future.

LloydĂs has always been concerned with technological innovation both as an insurer and a user, the quill pen serving only to remind us of our roots. Word processors are fast becoming commonplace and our telex facilities are constantly being updated, the most recent development being an electronic message switch which will enable messages to be exchanged more rapidly. Further improvements too are under consideration for the telephone system and, in collaboration with LloydĂs Insurance Brokers Committee a trial has commenced to assess the value of radiopaging in the Room.

I would now like, if I may, to refer to Mr Colin Thomas who retires on the 30th of this month having completed 30 years service. After joining LloydĂs as assistant to the Chief Accountant, he succeeded to that title, before becoming Finance Comptroller and then Secretary General. Among his many achievements were the introduction of Central Accounting and the successful renegotiation of LloydĂs underwritersĂ U.S. tax arrangements. Since July 1980 he has been concerned exclusively with the Fisher Report and subsequently the LloydĂs Bill. Following retirement he has agreed to continue to advise us during the passage of the Bill through Parliament. On behalf of you all, I thank him for his devoted service to LloydĂs.

It is seldom possible to combine business with pleasure to quite the extent that we shall be able to tomorrow. I refer, of course, to the visit of Her Majesty, Queen Elizabeth The Queen Mother, LloydĂs most illustrious Member, who has graciously consented to inaugurate construction of the new building. The ceremony will mark the formal beginning of a project which, if it continues on schedule, should be completed in 1985/86.

4 Nov 81

Bankers Trust Co. -v- Hartford Accident & Indemnity Co., 518 F. Supp. 371 (S.D. New York, 22 July 1981. Vacated on rehearing, 621 F. Supp. 685, 4 November 1981. Court rejected insurers "owned property" exclusion defence to coverage for an environmental claim. Insurer was obligated as a matter of law under policy providing coverage for damage to third party property to pay for work done on premises of insuredsĂ property where it was undisputed that if preventive work had not been done, oil would continue to prevent third partyĂs use of own property, and reasonable result was to prevent further oil seepage.

9 Nov 81

Daily Telegraph: Report claims LloydĂs breaks companiesĂ law

A DETAILED and withering attack on the management of underwriting agencies at LloydĂs alleges that they breach the provisions of the Companies Acts, that shareholders benefit at the expense of external members of LloydĂs, and that the accounts are inadequate and misleading.

This comprehensive criticism accompanies a unique analysis of the companies results. Unlike syndicates, the agencies are limited companies and must file accounts at Companies House but the figures have never before been collected and analysed.

Understandably, in view of the findings, "underwriters have expressed concern that this research should be published on the grounds that it invades to some extent the privacy to which they are entitled."

Failing to have the report withdrawn, some companies retaliated by threatening to disclose even less in future to prevent another such detailed analysis. Yet the report from Financial Analysis and Research * points out that the current " disclosure of information is inadequate from the point of view of the non-working member of LloydĂs."

"The disclosed profit levels would appear to be misleading and understate true profit levels," says the report. One reason is that the accounts omit some financial details.

For instance, some companies fail to show income and spending prior to recovery, from the syndicates they manage. In addition, parent companies take management fees which are "a form of distribution of agency Company profits," and this is bound to understate agency profits.

" J. H. Minet, Janson Green and Sedgwick Forbes are an illustration: all of whom ranked high in gross earnings of agency fees and profit commission, but exceptionally low in pre-tax profit." Discussing general practice, the report adds that "such a material item as expenditure debited Šin advanceĂ should at the very least be disclosed but this is not the practised."

More reprehensively, " remuneration paid by the agency companies and reimbursed by the syndicates is not being disclosed, despite the provision of the Companies Acts," yet they still get clear audit certificates.

Disclosure is further avoided by paying directors "through other unidentified group companies," though legally this should also be disclosed, and directorsĂ pay is often not given.

Worse still, money held by the agency for distribution to members is lent to associated companies and "the interest income on such funds is shown in the accounts of those unidentified group companies and not in the accounts of the agency company."

"It is extremely difficult to understand how auditors can provide unqualified certificates in these circumstances, but may possibly be explained by the close relationship which exists in the LloydĂs community.

"If agency companies and their auditors are prepared to compromise on a matter which is specifically provided for then one can have little confidence in any procedures for voluntary disclosure of more important and significant information of interest" to external members.

Agency shareholders benefit in several other ways at the expense of outside LloydĂs members: the audit fee is borne disproportionately by the "names" and "allocation of costs between syndicates and agencies would seem to favour the agencies and shareholders."

"It is difficult to understand," says the report, "how LloydĂs agencies have managed to avoid for so long the basic principles of principal and agency law." Contracts favour the agent, and there are numerous conflicts of interests. These will be left untouched by the recent decision to separate underwriters and brokers.

In the many tables, Alexander Howden is shown to rank first on fees and commissions with ˙4.2 million, just ahead of LloydĂs chairmanĂs firm Janson Green, and Merrett Dixey Syndicates with ˙1.8 million each. Howden also had the largest investment income of ˙655,000 followed by Bland Welch with ˙541,000.

The tables also show many agencies are making losses and some with wildly fluctuating results.

* LloydĂs Underwriting Agencies - Financial Status and Performance (Financial Intelligence and Research ˙65.

10 Nov 81

Meeting of LloydĂs Panel Auditors:

[There are three versions a censored LloydĂs version and uncensored AuditorsĂ versions, one with a rather significant typing error.] The LloydĂs censored version inter alia states:

Minimum Percentage Reserves

The Panel considered that the current scale of percentage reserves represented a reasonable minimum scale.

Accounting and Auditing Manuals

Mr Randall informed the Panel of progress regarding the Accounting and Auditing manuals. He explained that the Accounting and Auditing aspects were being looked at as two separate tasks. The Accounting Manual was to go forward in the form of a "Green Paper" at the end of the year for consideration by Auditors etc., and would be followed by the Auditing Manual which had not yet reached this stage. Mr Randall asked the Panel for its views on the best method of promoting constructive discussion on the proposed Manual. It was agreed that Auditors should submit written comments concerning the Manual to the Underwriting Agents & Audit Department who would then consolidate the replies. Auditors would also be given the opportunity at a meeting to air their views on any of the items in the Manual

New System For The Annual Solvency Test

Mr Randall went on to state that Agents would have the option to log full details of personal reserves in the system; however those Personal Reserves used for Audit purposes would in any case, have to be logged.

Various other anomalies had been identified and the system amended accordingly (I) the need to spell out how syndicates with 4 year accounts should be dealt with, and (2) cases where Members Agents managed the .... Premiums Trust Fund monies of their own Members.

New Statutory Instrument

Mr Bowmer reported that as Department of Trade approval had now been received, it was hoped to discontinue the Global Statements after the 31 December 1981 audit, and went on to state that certain minor changes had been made to the Revenue Accounts - primarily a requirement that Marine, Aviation and Transport business should be separated. Concerning the apportionment of expenses in the Revenue Accounts, it was hoped that guidelines could be issued as to how such items should be split.

Also under consideration was the manner in which the information was received, namely the possible change from a "per Auditor" basis to a "per syndicate" basis. In this respect it was noted that a number of Panel Auditors had expressed dissatisfaction with the manner in which these returns are compiled at present.

Allowance for Reinsurance in Audit

Mr Parkington reported that over the years the Committee of LloydĂs had been concerned regarding the ineffectiveness of the reinsurance regulations for audit purposes. The Department of Trade was also looking into the question of regulating reinsurance. Proposals had already been discussed by the Audit Committee and would go to Auditors and LloydĂs Associations for testing. It was intended that the new regulations should be introduced with effect from the 1983 account.

Concerning the reinsurance allowance in relation to the minimum percentage reserves, the minimum reserves would continue to be applied to net premium income, but if reinsurance exceeded a certain level, such reserves would be increased. Where the estimated outstanding liability test was used, there should be specific reductions for certain recoveries, i.e. where amounts are due from other LloydĂs Syndicates or where outstanding liabilities are covered by a letter of credit or are guaranteed by Brokers.

Non-Marine "All Other" Reserves

Mr Parkington reported that alternative methods for the calculation of the minimum scale of reserves for Non-Marine "All Other" business was being considered, along with the method by which statistics are complied; separate scales of reserves for the three currency accounts were also under review.

It was likely that the method of determining minimum reserves might, in future, be based on claims settled rather than percentages of premium income.

Mr N F Holland asked whether consideration had been given to the development of claims and claims expenses on a gross basis rather than net. He acknowledged, however, that it would be at least 10 years before any such information would be useful in illustrating reliable trends.

Mr Kiln stated that he would welcome details of any systems Auditors used, and confirmed that Auditors may inspect the statistics held by the Audit Department if they so desire. Mrs Triggs stated that her firm had produced a number of mathematical models that the Research and Development team may inspect if they wish.

Co-Insurance Directive

Mr Bowmer informed the Panel that the Department of Trade had agreed that the Directive would state where the leading insurer informs his "followers" as to what reserves are being created, LloydĂs Underwriters should carry specific provision of at least the same amount for such business.

For the 31 December 1981 audit, it must be confirmed to the Department of Trade that Syndicates have complied with this requirement, confirmation would therefore be required from Auditors that Syndicates had complied with the Directive.

It was agreed that, when submitting their statements of outstanding liabilities to Auditors, Underwriters should be asked to confirm to Auditors that the Directive had been complied with. Auditors would then be able to provide such confirmation to the Committee of LloydĂs. (It was pointed out that such an approach had been agreed with the OCAB).

Life Solvency Margin

In explaining the problems surrounding this subject, Mr Parkington informed the Panel that the Committee of LloydĂs had decoded that Life Underwriters should increase their deposits to bring them into line with current requirements by no later than 1983 (or earlier if the new LloydĂs Act was enacted before then).

Auditors would be required to report life surpluses, notwithstanding the fact that the current Audit Instructions stated that all credit balances must be reserved. This conflict would be overcome by stating in the Instructions that no credit shall be taken for life open year balances in respect of the Solvency Test of Syndicates. By doing this, life surpluses may be brought into account for solvency margin purposes.

Any Other Business

Asbestosis

Mr Kiln, Committee Member and Chairman of LloydĂs Audit (Solvency) Committee, reported that claims were being made on notices as far back as 1947 where underwriters had been involved in direct insurance or reinsurance of companies covering liabilities of companies subject to asbestosis claims.

Mr Lawrence, Committee Member and Deputy Chairman of LloydĂs] reported that a databank was being produced which would contain details in respect of the 10 or 12 major assureds with all years of cover. The loss adjusters would then be able to make some estimate of underwritersĂ lines on such risks. Projections of claims for 3 or 5 years hence would be made, and also loss expenses for 2 or 3 years ahead; both such items would be in respect of direct business only. From the databank it would be possible to obtain a list of major companies and look at their reinsurers, to give a rough estimate as to the exposure in respect of reinsurance business.

Mr Kiln pointed out that he did not wish to see mention of these specific claims in the Audit Instructions.

Mr N F Holland, of Ernst & Whinney, requested that an indication should be given to Auditors as to how the databank report was fragmented, so that they may know what to look for. Mr Lawrence replied by stating that a Market Meeting would be held soon enabling all to be appraised of the situation.

It was agreed that there would be a further meeting of the Panel early next year to consider asbestosis and any other business not concluded at this meeting.

Earmarking of LloydĂs Deposit in respect of Closed Year Losses

Mr Bowmer informed the Panel that a circular would be going to the Market on this subject, followed by appropriate amendments to the Agents Manual.

Agency Accounts

In response to a query concerning recent articles in the press, the Panel was informed that the whole question of disclosure and information to Names was being considered and that no more than a low key response to these articles was intended at this time.

Conditional Credit Notes

It was reported that the acceptability of Conditional Credit Notes was under review.

The Committee members and Auditors who attended:-

R J Kiln

Audit Committee Chairman

W N M Lawrence

Committee of LloydĂs

K E Randall

Underwriting Agents & Audit Department

M Bowmer

Underwriting Agents & Audit Department

S E Draper

Underwriting Agents & Audit Department

A F Parkington

Research & Development Department

Panel Accountant

Panel Auditor

R Andrews

Arthur Andersen & Co

J Combes

John Baker Sons & Bell

M P Dagnell

De Paula, Turner-Lake & Co

D F Dickson

Deloitte Haskins & Sells

N F Holland

Ernst & Whinney

E H Head

Futcher Head & Gilberts

G N Reitz

Arthur Young McClelland Moores & Co

R P G Lewis

Kidsons

D Stevens

Littlejohn & Co

J M Massey

Macnair Mason

Miss P W Triggs

Peat Marwick Mitchell

A A Hobbs

Pannell Kerr Forster & Co

A M Blake

Neville Russell & Co

C Hampton

Spicer & Pegler

The Hon. Roy Constantine

Touche Ross & Co

10 Nov 81

LloydĂs Panel AuditorsĂ meeting: Minutes taken by D Stevens, Littlejohn & Co

[There are three versions a censored LloydĂs version and uncensored AuditorsĂ versions, one with a rather significant typing error.]

  1. Accounting and Auditing Manual

The final draft of the Accounting Manual is close to completion. The Accounting Manual will set out the requirements that the accounting records have to satisfy, the information that has to be disclosed in the accounts, the Managing Agents Reports, and the information that a MemberĂs Agent has to send to each of his Names annually.

A draft Auditing Manual Ó be completed by the year end.

LloydĂs will then prepare a Green Paper which will be circulated to the market, Department of Trade & Industry and other interested bodies for comments during 1982.

  1. Early Warning System for Premium Income

This system will not involve auditors, but will effect both the Managing Agent and the Underwriter. This system will monitor premium income on the underwriting account as opposed to the calendar year and will involve taking the figures at the end of six months, twelve months etc. on the underwriting account and projecting them forward in line with the experience on previous underwriting accounts. The returns will be of both gross premiums, after deducting return premiums, and net premiums, i.e. after deducting reinsurance premium. The paper on this subject has not yet been put to the Committee of LloydĂs.

The existing annual premium income reports will continue at the same time.

4. New System for LloydĂs Annual Solvency Test

A revised version of the proposed system will be issued at the end of October and there will be presentations for auditors and underwriting agents in early December. Underwriting agents may be accompanied by their auditors if they so wish

It is hoped that the software will be available by the end of 1981.

  1. New Statutory Instrument

LloydĂs hope they have final agreement with the Department of Trade and Industry. If this is so, both Global Revenue Accounts and Global Statements will be required in June 1982, but in June 1983 only Global Revenue Accounts will be required.

The Department of Trade and Industry will require marine, aviation and transport to be split into its three constituent parts.

LloydĂs will issue guidelines as to how expenses should be split and are considering requiring these forms to be submitted on a syndicate basis as opposed to a firmĂs basis.

  1. Allowance for Reinsurance in Audit

It is hoped to operate a new system with effect from the 1983 account. In addition to current requirements, syndicates will be required to keep records of gross outstanding loss reserves as well as net outstanding loss reserves. It is proposed that syndicates will have to provide these details at 31 December 1981.

At the moment, the Working Party considering the allowance for reinsurance in audit are turning away from introducing "an approved list of reinsurers".

  1. Non-Marine "All Other" Reserves

A Working Party is considering the question of substituting a system of applying factors to settlements instead of minimum percentage reserves. Tony Parkington feels that there are too many problems in sub-dividing all other business between medium and long tail business.

Auditors were reminded that market statistics on settlements are available in the audit office.

8. Co-Insurance Directive

The Department of Trade & Industry agree that the underwriter only has to set up the same reserve as the leader where the leader has advised the figures to the underwriter. The Department of Trade & Industry want confirmation that the Co-Insurance Directive has been followed. The Panel felt that the underwriters should provide a certificate that they have conformed with the Co-Insurance Directive, but Mr Bowmer felt that the Department of Trade & Industry may want the auditors to be involved in this confirmation.

  1. Any Other Business

Asbestosis

The potential claims in connection with Asbestosis make computer leasing appear [?in]significant (it should obviously be insignificant, not significant) by comparison. The claims go back to the 1947 account and, as a result of a court case in America known as the "Keen[e] Decision" the assured may claim on both exposure and manifestation if it suits them.

Murray Lawrence stated that, with regard to Direct Business, there will be a report on the 10 or 12 major assuredĂs, which will show the underwritersĂ lines for each syndicate of all years of cover. The report will project the number of claims already advised forward for five years in order to show which layers of the policies are exposed. On the reinsurance side, Databank hope to provide a list of major US domestic companies involved in the risk and give a rough shot at some of the exposures. Unfortunately, a loss report will not be available for an overall basis..

Auditors are advised to Ó that there is no confusion over one assured or one loss. The report will be coming out in "dribs and drabs" and Murray Lawrence has agreed to report back to Panel Auditors early next year.

It cannot be over-emphasised how serious the losses will be as a result of Asbestosis and Mr Lawrence felt that where syndicates had reinsurance protection, the scale of the losses may be sufficient to bankrupt the reinsurer. [Handwriting] It is hoped to have a further meeting of Panel Auditors to discuss asbestosis early next year.

11. LloydĂs Deposits

Where LloydĂs deposits are earmarked to cover a closed year loss and this loss has not been funded by the following 31 December, the NamesĂ premium allocation for the following year will have to be reduced.

10 Nov 81

LloydĂs Panel AuditorsĂ meeting: Minutes taken by NF Holland, Ernst & Whinney, dated 9 December 1981.

  1. Asbestosis: This came up under any other business and Murray Lawrence who is the chairman of the LloydĂs committee handling this matter made a fairly detailed statement. He takes the view that based on the latest decision in the American Courts both exposure and manifestation are a basis for settlement. Accordingly all years covered on both bases are vulnerable for claims. Mendes & Mount are preparing a report in respect of direct business and are going through the 10-12 major assureds covering all years and the losses on each year on all known covers. They will project the figures based on an average claim and will report back early in January on the estimated liability.... Hopefully this will give some feel for the loss on direct writing. It will then be up to each syndicate to consider what reinsurance protection it has and to take this into account in arriving at its net losses but, having regard to age of some this protection it will be essential that we look at it to satisfy ourselves that the companies concerned are still in business. On incoming reinsurance Murray could give no help at all. Each syndicate will have to do its own rough shot at exposure and hopefully by the end of the year will start to have some feel for the various sources from which claims will materialise. Murray was pressed to call a meeting of panel auditors early in 1982 to keep them informed of the latest position and he has agreed to talk to Ted Nelson on this to see what can be done... If there are any problems in obtaining information through Ted Nelson then I will certainly speak to Don Taylor with a view to obtaining whatever information I can from him and in this way I hope we can monitor available information in the market. Clearly there are some major losses developing and it will be important that we set up some form of intelligence with a view to pooling all available information from all sources within the London Market.

Nov 81

As at November 1981 an attorneyĂs report stated that an assured reported that it had 11,315 open cases and that new cases were being filed at the rate of approximately 100 per week. The report added that it is our observation that in cases where the plaintiffs is able to make out a prima facie cause of action, juries do find liability.

Nov 81

As at November 1981 An attorneyĂs report in respect of assureds stated that the asbestos cases manifestly represent grave potential exposure to the asbestos manufacturers and producers of the past 40 to 50 years. The situation must be viewed as one of certain liability. A major problem concerns the fact that it is impossible to predict with certainty the number of products liability claims that would be made against the assured. The number of potential claims would appear to be staggering.

11 Nov 81

Lord, Bissell & Brook: Report number ... from Attorneys to underwriters at LloydĂs. Assured: Flintkote

(An attorneyĂs report referred to a huge increase in the number of claims brought against one assured. As at 1 November 1981, notices of a total of 4,656 claims against the assured in 28 American jurisdictions had been received. At 30 June 1981 a total of 6,210 law suits involving 7,877 individual claimants had been filed against the assured. Since 30 June 1981 the assured experienced an additional 300 new claims each month for a current total of approximately 9,000 claims. The report added that there are numerous well informed people who believe that the claims filed to date represent only the beginning of a potential flood of asbestos litigation).

We are recommending substantial reserve changes in this report which reflect a huge increase in the number of claims brought against the assured since our last report.

[They then go through all the various States of America where claims have been brought against Flintkote.]

Summary of AssuredĂs position:

Since our last report of January 1980 we have received advices from the American broker regarding 3,753 new claims brought against this assured by individual claimants in multiple jurisdictions throughout the United States. As of 1 November 1981 we thus had received notices of a total of 4,656 claims against the assured in 28 American jurisdictions. We are not satisfied that these numbers represent the actual number of claims, however. This is because the assured recently has advised us that as of the end of the second quarter of the 1981 calendar year, concluding on 30 June 1981 a total of 6,210 law suits involving 7,877 individual claimants had been filed against the assured. The assured further advises that since 30 June 1981 it has experienced an additional average of 300 new claims each month for a current total of approximately 9,000 claims filed against Flintkote in the asbestos litigation....

The coverage issue:

.. the United States Court of Appeals in the Porter -v- American Optical and INA -v- Forty Eight Insulations cases respectively have determined that the date of an injured personĂs exposure to asbestos products triggers coverage under the liability policies issued to asbestos producers and manufacturers. Recently, however in the Eagle-Picher -v- Liberty Mutual case [the court]ruled in favour of the Š manifestationĂ theory.... And even more recently, the United States Circuit Court of Appeals for Washington DC in the Keene Corporation case held in favour of still another interpretation finding coverage attached on all years of inhalation exposure as well as during the years when the fibres were present in the human body without inhalation (exposure in residence) and the year of manifestation of disease. All four of those decisions are being or will be appealed further and it is hoped by many that the United States Supreme Court will grant Certiorari to hear and finally decide this perplexing issue.

Recommendation for Future Handling:

We must emphasis to the excess insurers that these reserves relate only to those claims known by the assured thus far. It does not take into account future bodily injury claims which one can anticipate will be brought against this assured in the future.

We should advise Underwriters that there are numerous well informed people who believe that the claims filled to date represent only the beginning of a potential flood of asbestos litigation. We recall that the Secretary of Health, Education and Welfare of the United States reported in 1978 that 67,000 people each year will die from exposure to asbestos products during the rest of the 20th Century. We know that between 8,000,000 and 11,000,000 workers have variously been exposed to asbestos in the United States since the beginning of World War II and of this group 4.5 million have worked with asbestos-containing insulation materials in shipyards. Most of the shipyard workers have been exposed to asbestos and it is estimated by the United States Government that one third of all those heavily exposed to asbestos have died or are likely to die of asbestos-related diseases. Although the assuredĂs Involvement with producers containing asbestos does not appear to be as substantial as other defendants in these matters, it may be that in the future the assured regularly will be included among the growing group of frequently named defendants in these cases.

For these reasons we urge Underwriters to carefully consider all of the factors when establishing reserves herein.

81

Prior to the take-over of Alexander Howden by Alexander & Alexander Services Inc., there was some concern about the competence of the Howden management and whether the Howden team had been entirely honest during the lead up to the offer documents. On enquiry towards the end of 1981, Alexander & Alexander were told consistently and emphatically by the Howden team that the impact of computer leasing losses on underwriting results would not be a problem for Howden. Mr William B Farley, Senior Vice-president (Finance), Alexander & Alexander Inc., New York, is quoted as stating to the DTI appointed Inspectors investigating Howden:-

"At the time that we were talking to them, computer leasing and asbestosis were major problems. The computer leasing settlement in LloydĂs was under way, and asbestosis was a major issue in the U.S. underwriting markets, ... and those issues were all raised with Howden, specifically in the context of what exposure did they have in the syndicates and in their underwriting companies, not just over all but with regard to those particular risks. And we were assured by what we thought were honest, reasonable men that stop loss protections, etc., had protected them against any catastrophic loss".

(Presumably, the same questions were asked of Sedgwick Forbes prior to the merger breakdown in July 1981.)

12 Nov 81

An Unlimited xs ˙1.25m run-off reinsurance placed for R Hampton, Underwriter of the Anton Non-Marine syndicate 179 to incept at 1 January 1981 covering years 1959 to 1968. Outhwaite wrote 100%.

12 Nov 81

A run-off reinsurance placed for the Continental Insurance Company of Madrid to cover all risks written prior to 31 December 1979 in respect of the 1973 - 1979 years of account, attaching after 4th quarter 1980. Outhwaite wrote a line and settled at a loss of ˙149,796.

16 Nov 81

Daily Telegraph: LloydĂs agents act to increase borrowing limit

UNDERWRITING agents at LloydĂs are making unprecedented arrangements to borrow very large amounts of money in preparation for major losses by syndicates. To provide security for the loans a large number of agents at LloydĂs, have written to members asking them to stand surety from unlimited borrowings.

Members have been asked, to sign documents which vary the underwriting agency agreement. A new clause has been inserted enabling the agent "at his sole discretion" to "borrow monies in such a manner and on such terms as he shall see fit" with the LloydĂs members "agreeing to indemnify the agent."

Another one puts it even more sweepingly: the new clause enables the agent to borrow "such amount, in such manner, with or without security, and generally upon such terms as the agent may from time to time see fit."

The member "agrees to keep the agent indemnified" for the "borrowing and all interest, action, claims, cost, charges and expenses arising in connection therewith and In undertakes to reimburse the agent" forthwith.

Such sweeping powers and is open-ended commitment have caused LloydĂs members concern, but they signed because the alternative is to leave LloydĂs.

Peter Daniels, deputy chairman of LloydĂs Underwriting Agents Association, says they need not be alarmed that as it entails a second unlimited liability - it is merely a restatement of their original commitment on joining LloydĂs.

In the past agents might have warned members that they might have to put up additional cash at a time when the syndicate ran into losses. With a decreasing proportion of members within walking distance of Lime Street (and a growing percentage overseas) the agents have to borrow to obtain money quickly.

Mr Daniels would still observe three important rules: tell the member when money was borrowed: borrow only a reasonable sum for a specific settlement: ensure the terms were commercially acceptable. And he pointed out that the squeeze was most likely to be on "short tail" syndicates like livestock or marine total loss.

Syndicates covering risks which can take a long time to become apparent have usually built up reserves to cover contingencies. But in either case the fact that the agent is asking for the borrowing power shows that "trading conditions are more difficult at the moment."

Although syndicates are more heavily reinsured than used to be common there is still the hiatus before collecting the reinsurance money.

Underwriters are thought to be forecasting such high claims that the income from the syndicateĂs trust fund will not generate enough cash to meet demands. That seems to mean very tough times ahead.

18 Nov 81

LloydĂs Market Circular letter: Computer Leasing

Losses being increased from $400m to $444m, before expenses.

18 Nov 81

Winchester Bowring placed an unlimited xs $35m run-off reinsurance of The FiremanĂs Fund 1974 reinsurance contract of the Sturge Rokeby-Johnson Non-Marine Syndicate 210.

Outhwaite Non-Marine Syndicate 317/661 wrote 50%, Merrett 417 37.5%, Merrett 421 12.5%. The contract was capped on 9 February 1989 at $50m with a $160m excess ($35m), following additional agreed payments at specified dates. Reinsurers have benefit of a NERCO "T & D" policy with a financial sum insured $15,325,000 for premium $6,025,700, with commutation not before.

In 1985 the following bureau signing number 210 was party to the Wellington Agreement indicating a long tail asbestosis involvement. H R Rokeby-Johnson was on the Committee of LloydĂs in the 1970Ăs, Chairman and Deputy Chairman of the Asbestos Working Party, and Chairman in 1983 of LloydĂs UnderwritersĂ Non-Marine Association.

19 Nov 81

Insurance Companies Regulations, Statutory Instrument No. 1654 of 1981.

19 Nov 81

Keene Corp. -v- I.N.A.

Judgement re-defined in the District of Columbia, Court of Appeals and upheld. This involved the ŠTriple TriggerĂ approach and is regarded as one of the key decisions affecting liability of Insurers in relation to asbestos losses.

81

Section 22 of the Insurance BrokersĂ Registration Act came into force. It provides that no person or company may now use the title "insurance broker" unless registered by the Insurance Brokers Registration Council. Improper use of the title can bring a fine of up to ˙1,000 on conviction.

20 Nov 81

Daily Telegraph: Kiln quits LloydĂs committee

ROBERT KILN, a long serving member of the ruling committee of LloydĂs, has resigned, although his tenure on the committee had another three years to run. It is thought that one of the reasons is disagreements within the committee about policy.

As a result of the divisions some members made it clear to Mr Kiln that he would not be elected to deputy chairmanship despite being the longest serving member of the committee.

Elected to deputy chairmanship yesterday were Brian Brennan, 63 (for the second year) and Murray Lawrence 46. Peter Green was elected to a third term as chairman, as expected. Organisation of a vote by LloydĂs to replace Mr Kiln on the committee will be by the criticised method of attendance only, thus making voting difficult for overseas and country members.

Mr Kiln said that he undertook his third term on the committee "on the basis of certain expectations. It has been made clear to me this week that none of these expectations are likely to be fulfilled during the remainder of my three-year term of office."

As a consequence he decided little was to be gained by staying on the committee and reckoned his "time and talents" might be "best used elsewhere." Mr Kiln said he was sorry to disappoint the people who had voted him on to the committee.

Replacing him will require another election, according to the by-laws of LloydĂs, since the runner-up in the recent vote - Ian Posgate - cannot be elevated automatically on to the committee. It is thought LloydĂs will try to organise this in the New Year.

20 Nov 81

Peter Cameron-Webb informs PCW Names that he proposes to stand down as Chairman as at 1 January 1982. He started the PCW Agency in 1966 and since 1975-6 has gradually relinquished the role of the day to day underwriting.

21 Nov 81

Letter from Attorneys to underwriters at interest. Assured: .... Liability: As of the end of September 1981, Owens-Corning reported to us that it had 11,315 open cases, and that new cases were being filed at the rate of approximately 100 per week... It is our observation that in cases where the Plaintiff is able to make out a prima facie cause of action, juries do find liability, Ó

... Reserves. Not accompanying this report, but being transmitted directly to underwriters are the reports of the "Asbestos Claims Information System".... we are pleased to report that these reports are the end result at this point of intensive efforts on the part of outside computer consultants, Alexander Grant and Co., Inc., and members of the Asbestos Claims Sub-committee Messrs CJ Ayliffe and K Rayment, and Mr J. Heath, to achieve computerisation of all asbestos claims.

21 Nov 81

The Economist: LloydĂs of London Immunised?

LloydĂs of London mater yet be forced to drop the outrageous clause 11 from its private parliamentary bill, which comes up for its third reading in the house of commons after Christmas. Clause 11 would give the new ruling council of LloydĂs, the society of LloydĂs and its employees immunity from liability for some of their actions. They could not, for example, be sued by any of the 20,000 underwriting names at LloydĂs for damages for negligence or breach of duty. Once the bill is enacted British names will have these legal rights whipped away from them.

But there is a snag. Will foreign names, especially the 1,300 Americans at LloydĂs, be free to sue in their courts back home? LloydĂs has a $3 billion trust fund (a pool of premiums) managed by Citibank in New York on which potential litigants might set their sights.

As a general principle, courts in the United States do not uphold immunities - even when they are claimed by presidents. (In 1974, Mr Richard Nixon claimed "executive privilege" when asked to hand over the Watergate tapes but. was overruled by the Supreme Court.)

In such a judicial climate, would the courts allow the elite London insurersĂ club to invoke clause 11 if an American member chose to sue the council in an American court? Unlikely, but nobody can be really sure until the question is tested in the courts. LloydĂs has asked its New York attorney, LeBoeuf, Lamb, Leiby and MacRae, for its opinion.

LloydĂs says that it wants the immunity clause to apply equally to all members of LloydĂs, foreign and British. If it cannot enforce it LloydĂs has another wheeze: ask all underwriting names to sign individual contracts agreeing to the proposed immunities. Some legal eagles think this could run into the same legal hurdles in America as clause 11 but British underwriting names have shown astonishing willingness to agree to it.

Earlier this year, many of the names on a big marine syndicate were asked to sign new contracts with their managing agent Cameron-Webb (which runs syndicates). Under the new terms, they were asked to give up their rights to sue the agent for damages for breach of duty and negligence. All but a handful merrily signed.

Nov 81

Letter from Attorneys to the underwriters at interest. Assured- ...Regarding asbestos litigation generally, a Plaintiff makes out a prima facie case when he has introduced credible evidence to support the following:

(I)

that the Defendants manufactured, marketed, sold or distributed asbestos insulation products;

(2)

that the asbestos products manufactured, marketed, sold or distributed were defective and unreasonably dangerous;

(3)

that the Plaintiff was exposed to any of the Defendants asbestos products.

(4)

that the Plaintiffs exposure to any of the Defendants asbestos products was sufficient to be a producing cause of certain asbestos-relating lung diseases;

(5)

that the Plaintiff has or had an asbestos related lung disease

(6)

that the Plaintiff suffered damages.

It is also generally recognised by industry members that when a Plaintiff is in a posture to satisfy the foregoing criteria, that settlement is the conduct of choice rather than chance the uncertainties of a jury trial. Experience has shown that in cases where the Plaintiff is able to make out a prima facie case juries do find liability, and what is more, impose far greater damages than the matter could have been settled for prior to trial. Consequently not only is settlement the conduct of choice, but in addition they are being accomplished on Affidavit type information rather than unnecessarily incur attorneyĂs fees in developing that same information via pre-trial discovery...

Reserves: Not accompanying this report but being transmitted directly to underwriters are the reports of the Asbestos Claims Information System...... Designed to achieve a computerisation of all asbestos claims... Regarding loss dates for asbestos related products liability cases the scoreboard is as follows: Porter and INA exposure. The Washington DC Circuit recently announced the triple trigger" concept in the case of Keene -v- INA. To say this is an extension of the "exposure" concept, would be an understatement. One District Court in the case of Eagle-Picher -v- Liberty Mutual held that the "manifestation" of the disease is the trigger for insurance coverage... Turning our attention briefly to the Keene opinion, the principal thrust of it stems from the holding that once there is an exposure during a covered period, the insurer at risk at this time is required to respond to the loss for both defence and indemnity if during the course of trial of the underlying tort case, it appears that more than one policy applies to the same loss, then evidence of this may be introduced at that trial, providing it does not disrupt the tort victims action . If there is a potential for a disruption of the tort victims action, then the issue as to how the respective insurers should contribute to the loss, pursuant to the "other insurance" clauses of their respective policies, must be tried separately. The Court was of the opinion that the medical evidence introduced at trial supported the conclusion that an asbestos related disease is not the result of repeated mini-injuries to the lungs, but rather the result of one continuous process commencing at initial exposure and ending in ultimate manifestation of a disease. Premised on this predicate the Court stated that coverage is therefore triggered by one of three events: (I) Exposure; (2) Exposure in residence and/or (3) manifestation. If either one of these three events occurs during a policy period, then that policyĂs coverage is triggered and it must respond for a full defence and indemnity. The Court further held that it is not the responsibility of the assured to respond for uninsured years, provided, of course, the exposure did not cease and manifestation occurred prior to the inception of the policies or that a "..disease was known or knowable by Keene at the time it purchased an insurance policy".

..... Recently a trial Judge in the U.S. District Court for the Eastern District of Pennsylvania in the case of Commercial Union -v- Pittsburgh Corning entered an order on Pittsburgh Corning Motion for partial summary Judgement wherein the Judge took Judicial note ".... of the indisputable scientific fact that cumulative physical damage resulting from asbestos inhalation occurs prior to manifestation. As a matter of law, such exposure is a covered occurrence during the policy which results in injury. At a minimum the policy language is ambiguous and must be construed against the insurer". The Court also found that the primary insurer, the Travelers, was obligated to defend Pittsburgh Corning without limitation during those years prior to 1966 when the TravelersĂ policies were "ambiguous" with respect to the defence obligation once policy limits were exhausted. ...In addition to the indemnity and defence expense reserves set forth here and above, we recommend that underwriters establish a $125,000 per year reserve for claims servicing.

23 Nov 81

Letter from Attorneys to underwriters at interest C/- Stewart Wrightson (North America) Ltd. Assured: PPG Industries/Pittsburgh Corning

With further reference to the captioned matters, and in particular our report dated October 30, 1981, and the agreement therein discussed, we have been in further communication with the assuredĂs attorneys advising them that Underwriters are unwilling to be a party to said agreement and, based on the current information, are unwilling to consent that the underlying limits of the INA and Kemper are exhausted by payment of the sums therein set forth.

The assuredĂs counsel related that there is no problem with redrafting the agreement so that Underwriters simply consent to the provisions, and that they will gather the necessary financial data to reflect that the INA and Kemper have expended defence amounts in addition to the indemnity sums set forth therein. Once this information is in hand, we shall report further to underwriters.

Nor accompanying this report, but being transmitted directly to Underwriters, are the "Asbestos Claims Information System" reports consisting of:

1)

Master Claimants Bordereau;

2)

Open Claims Bordereau by Assured;

3)

Closed Case Bordereau by Assured;

4)

Closed Case Summary; and

5)

Loss payments Bordereau by Assured.

We are pleased to advise that these reports are the products of the Computerisation program which is currently "On-Line", having achieved that status just this past week and after intensive efforts on the part of the outside computer consultants, Alexander Grant & Co., and members of the Asbestos Claims Subcommittee, Messrs. C. J. Ayliffe and K. Rayment; and J. Heath.

The "Master Claimants Bordereau" contains some 14,526 individual claimant records representing cases filed on behalf of plaintiffs seeking bodily injury as a result of exposure to asbestos fibres. Also included within this number are family members of workers who have likewise alleged an asbestos-related injury, and in addition have been actually diagnosed as having developed such an injury. Although the database may contain some error factor due to a duplication of claimantsĂ names resulting from misspellings, or the like, we have a sufficient level of confidence in the accuracy of the reports to predicate year-end reserve recommendations to Underwriters from both an "Exposure" and a "Manifestation" concept, which reserves appear in the "Loss Payments Bordereau by Assured" report.

From a liability Standpoint the courts have generally recognised that a Plaintiff does establish a prima facie cause of action once he has introduced credible evidence to support the

following elements:

1)

that the defendants manufactured, marketed, sold, or distributed asbestos insulation products;

2)

that the asbestos products manufactured, marketed, sold, or distributed were defective and unreasonably dangerous;

3)

that the plaintiff was exposed to any of the defendantĂs asbestos products;

4)

that the plaintiffĂs exposure to any of the defendantĂs asbestos products was sufficient to be a producing cause of certain asbestos-related lung diseases;

5)

that tine plaintiff has or had an asbestos-related lung disease;

6)

that the plaintiff suffered damages.

Once the plaintiff has established the foregoing, he is in a position to have his case go to a jury for determination of the factual issues. The most critical of the foregoing, is medical substantiation that the plaintiff, in fact, suffers from an asbestos-related disease and not Some respiratory insufficiency due to other factors, such as smoking. Where there is a sharp issue regarding whether or not the plaintiff does, in fact, suffer an asbestos-related disease, we have seen that juries, not being convinced, have entered verdicts in favour of defendants. Where, however, a plaintiff does have clear and convincing evidence that he does suffer from an asbestos-related disease, then rather than chance the uncertainties of a jury trial, industry members have pursued settlement dispositions at sums which work out far less than what a jury would return.

Currently, therefore, settlements are being pursued on affidavit type evidence, rather than unnecessarily incur defence expenses in developing this information through exhaustive pre-trial discovery. Discovery is pursued where there is some doubt as to the evidence produced by the plaintiff.

Significant economies are also achieved in group type settlements, and experience-has shown that the average settlement in such dispositions is far less than the average of claims settled on an individual basis. These types of settlements are only achievable, however, where there are groups of plaintiffs suing in one complaint or an individual attorney does have control over a group of plaintiffs.

The "Loss Payments Bordereau by Assured" for Pittsburgh Corning reflects the following reserves from the ground up for the years at risk. (Ground up exposure and manifestation reserves, together with expenses, are detailed for the various policies in force between 24 July 1970 to 1 July 1975. On a combined basis, these are:-

Exposure

$18,308,771

Plus 25% Expenses $4,577,193

$22,885,964

Manifestation

$ 8,679,290

Plus 25% Expenses $2,169,799

$10,849,089

Total

$26,988,061

Plus 25% Expenses $6,746,992

$33,735,053.)

We have not included reserve figures for the periods subsequent to 1 July 75 for the reason that as of that date there was an asbestos exclusion contained in Pittsburgh CorningĂs primary policies, and although not written into the Umbrella policies, Underwriters have asserted the position that, had they been made aware of this information, they would likewise have excluded asbestos claims. It is to be observed that in a schedule of coverage prepared by Pittsburgh Corning, they do not reflect coverage subsequent to that date, presumably because of the exclusion. Accordingly, we deem it appropriate for Underwriters to maintain the posture that as of and subsequent to that date the Umbrella policies do not provide coverage for asbestos products liability claims.

With respect to future computer reports, we currently anticipate that they will be issued on a semi-annual basis unless greater frequency is required.

23 Nov 81

Mendes & Mount letter to the Underwriters at Interest C/- R W Sturge & Co Ltd.

Assured: Johns-Manville Corp.

... we wish to advise that we have now received a sixth claim from Johns-Manville seeking reimbursement from underwriters subscribing the policies for the years "7-1-52 to 6-30-60" in the sum of $225,025.53, reportedly represents UnderwritersĂ proportionate share of "...62 asbestos health products liability claims..." settled by Johns-Manville during October 1981, and wherein the claimants alleged exposure during the period of time the policies subscribed by Underwriters were in effect

A careful study of the supporting documentation for each claim reflects that no one claim exceeds the "Schedule of Underlying Limits", therefore we have proceeded on UnderwritersĂ behalf to reflect this claim, as we have done with the previous five claims submitted by Johns-Manville.

For UnderwritersĂ assistance we are enclosing herewith copy of Johns-ManvilleĂs letter, together with "STATEMENT OF ACCOUNT". We are also enclosing copy of our letter to Johns-Manville dated November 13, 1981.

With the submission of this additional claim, Johns-ManvilleĂs position is that there is currently due and owing to it from Underwriters the sum of $1,621,688.07, consisting of the following claims: (6 claims are detailed, having been settled between the period 29 May to 5 November 1981, involving 379 cases for a total amount paid of $1,621,688.07).

The question of the manner in which UnderwritersĂ excess policies for the years 1952 through 1960 are to attach to asbestos products liability litigation, is currently being conferred with officials of the assured, which discussions have not yet resolved the issue. Further discussions are anticipated and we will be furnishing Underwriters with additional details thereon within the immediate future.

We are pleased to advise that the year-end reports generated by the "Asbestos Claims Information System" are being transmitted to Underwriters directly and consist of:

1)

Master Claimants Bordereau;

2)

Open Claims Bordereau by Assured;

3)

Closed Case Bordereau by Assured;

4)

Closed Case Summary; and

5)

Loss Payments Bordereau by Assured.

These reports are the results of the computerisation program which is currently in an "On-Line" mode and is the result of intensive efforts on the part of the outside commuter consultants, Alexander Grant & Co., Inc., and members of the Asbestos Claims Sub-committee, Messrs. C. J. Ayliffe and K. Rayment; and Mr. J. Heath. To say that this was a massive undertaking, when one considers the volume of data, feasibility studies, vendor selection, programming, conversion of previously stored data, implementation, printout, submission of year-end reports, and the target date within which all of this was to be accomplished, is an understatement indeed.

The Master Claimants Bordereau, containing some 14,526 individual claim records, represents cases filed on behalf of plaintiffs reeking bodily injuries as a result of exposure to Asbestos fibres. As each individual case is entered, the System is programmed so that a reserve is automatically established for that case, both from an exposures and a Manifestation concept, where that information is available. Where the information is not available, then this reserve is extrapolated from the cases where said information is available.

The "Loss Payments Bordereau by Assured" for Johns-Manville reflects the following reserves from the ground up for the years at risk. (Ground up exposure and manifestation reserves, together with expenses, are detailed for the various policies in force between 7 May 1951 to 1 July 1963. On a combined basis, these are:-

Exposure

$89,978,807

Plus 25% Expenses $22,494,702

$112,473,509

Manifestation

$ 1,610,896

Plus 25% Expenses $ 402,728

$ 2,013,624

Total

$91,589,703

Plus 25% Expenses $22,897,430

$114,487,133.)

Recognising that the policies written on an each-and-every basis not in excess of underlying aggregates, the foregoing reserves would not come through to UnderwritersĂ layers. However, in view of the issue raised by Johns-Manville regarding "ambiguity" of the Schedules and the fact that for the years in question the underlying policies were written on an aggregate basis, and the primary, The Travelers, has exhausted those aggregates, a potential exposure to Underwriters exists. If the limits at issue were written in the aggregate in excess of aggregates, the foregoing reserves from an "exposures" standpoint develop total policy losses. Underwriters should be guided accordingly.

Insofar as the underlying asbestos products liability cases are concerned, ever since the seminal case of Borel -v- Fibreboard, which in substance held that an asbestos insulation worker was exposed to an unreasonable risk which should have been known by the manufacturer and therefore, their products were unreasonably dangerous if not accompanied by an adequate warning, there has been a proliferation of litigation wherein damages are being sought for injuries resulting from the inhalation of asbestos fibres. The data-base currently consists of some 14,526 such cases.

Today courts generally find that a plaintiff has satisfied his burden of proof when he has introduced credible evidence establishing:

1)

that the defendants manufactured, marketed, sold, or distributed asbestos insulation products;

2)

that the asbestos products manufactured, marketed, sold, or distributed were defective and unreasonably dangerous;

3)

that the plaintiff was exposed to any of the defendantĂs asbestos products;

4)

that the plaintiffĂs exposure to any of the defendantĂs asbestos products was sufficient to be a producing cause of certain asbestos-related lung diseases:

5)

that the plaintiff has or had an asbestos-related lung disease; and

6)

that the plaintiff suffered damages.

Once a plaintiff has satisfied these criteria, then industry members realistically look upon the matter as one to be resolved by settlement disposition, that is, of course, assuming reasonable terms can be agreed upon, rather than chance the uncertainties of a jury trial. Experience has shown that in cases where a plaintiff is able to make out a prima facie cause of action, juries find liability, and what is more, impose damages greater than what the matter could probably have been settled for prior to trial. Settlements, therefore, are the conduct of choice. In many instances today these are being accomplished on affidavit type information rather than awaiting the development of that information via expensive and time consuming pre-trial discovery. This, of course, achieves economies by keeping defence costs to a minimum, while at the same time producing that type of information which is necessary to an intelligent evaluation of the case.

Greater economies are achieved with block settlements, when such are available, and industry members do push for this type of disposition rather than proceeding on an individual basis. Averages in group settlements are generally far less than averages in individual case settlements.

Regarding cases that have been tried to a conclusion, it is interesting to note that the defendants have won more than they have lost; however, under close scrutiny it will be observed that these cases involve a very sharp issue as to whether or not the plaintiff did, in fact, suffer an asbestos-related disease. Where the medical evidence produced by the plaintiff equivocates on this vital issue, it appears that juries will return a defendantĂs verdict.

The principal defensive posture in all of these cases continues to be that the asbestos industry did not have an obligation to warn users of asbestos products prior to the publishing of Dr. SelikoffĂs studies regarding health hazards to insulation workers exposed to asbestos fibres in the field. While prior to that time there was medical evidence available to substantiate a causal relationship between asbestos fibres and certain diseases, that information was associated with workers handling raw asbestos as opposed to a finished product containing some percentage of asbestos. The early medical studies did substantiate the fact that workers dealing with raw asbestos were at a significant potential risk of developing an asbestos-related disease if appropriate safeguards were not followed.

In addition to the foregoing reserves, we also recommend that Underwriters increase claims servicing reserves to $125,000 per year, which sum will include pro rata share of annual computer operational costs, database updating, new case entries, and general claim handling.

These matters continue to receive our close scrutiny, and we shall be pleased to keep underwriters timely advised of all future significant developments. As currently projected, we anticipate producing "System Reports" on a semi-annual basis, unless experience requires an increased frequency.

Nov 81

Letter from Attorneys to the interested insurers. Report number ... Assured: ... this risk presents substantial exposure to the London Excess Insurers in the 1967-1972 period. We are recommending this reports substantial loss reserve based upon an exposure theory of coverage. We do not believe the excess Insurers here should sustain a loss if the manifestation theory of coverage is deemed to be applicable to these losses.... Our review of this risk reflects that the primary source of claims against the assured stems from the shipyard facilities along the coastal areas of the United States. This apparently was because several occupational trades often were simultaneously employed in the same dry dock working area where asbestos fibres were in the air and inhaled into the lungs of many workers including those not actually working with asbestos-containing products.

Regional Developments: The assured believes that if the U.S. Government were judicially compelled to share in the asbestos- related bodily injury loss payments, then national legislation might be forthcoming to help avert the potential financial collapse presently being faced by many asbestos manufacturers and producers... We are advised by Alexander Grant and Company, the firm engaged by the London Market to consolidate and computerise all of the asbestos claims involving this assured and others, that the 9,955 figure as of 5 June 1981 may not be accurate because of the possibility that some duplication of claims reported may have occurred. We have pressed the computer data firm to advise us immediately once an accurate number count can be confirmed.... The average loss payment incurred by the assured as of 16 September 1981 for 897 individual claimant files reported as closed since 1975 is $4,190,099 plus $2,095,449 equals $6,285,547 divided by 897 equals $7,007.30.

Regional Developments...

  1. Opinion as to liability: the asbestos cases manifestly represent grave potential exposure to the asbestos manufacturers and producers of the past 40 to 50 years.....
  2. The situation must be viewed as one of certain liability. The problems re establishing reserves there are several acute problems... The first problem is that it remains uncertain as to what basis will ultimately be used to determine the applicable liability coverage for each loss.... A second major problem concerns the fact that it is impossible to predict with certainty the number of products liability claims that will be made against this assured. Secretary of the HEW estimated that 8-11 million American Workers have been exposed to asbestos since the beginning of World War II. A study by three agencies of the United States Government project that over the next 30 years, approximately 13 to 18% of all cancer deaths would be asbestos-related. The number of potential claims would appear to be staggering. A third problem concerning the establishment of realistic reserves concerns the fact that we do not know as of yet whether the underlying coverage herein was written on an aggregate or per-occurrence basis. If the coverage was written on an aggregate basis we have been unable to obtain any indication thus far that records are being kept so that the impairment of this underlying coverage can be monitored.

Recommendations for future handling:

We must emphasise to the excess insurers that the suggested reserves herein relate only to those claims known to have been made against the assured to date. The reserves do not consider future bodily injury claims that we believe can reasonably be expected to be brought against the assured. We therefore urge each of the excess insurers to consider these factors in the event they wish to establish reserves to accommodate such future claims.

Nov 81

Winchester Bowring re-approached R H M Outhwaite for a further quotation in respect of the unlimited run-off for the Wrightson Non-Marine Syndicate 90. Winchester Bowring provided details of Pulbrook WrightsonĂs loss settlement figures as at 30 September 1981

1 Dec 81

An Unlimited xs $4,000,000 run-off reinsurance placed for C J Smith, Underwriter of Non-Marine Syndicate 660 jointly managed by Fenchurch Underwriting Agencies and Birrell Smith Underwriting Agencies to incept at 1 January 1981 covering 1978 and prior years. Outhwaite Non-Marine Syndicate 317/661 wrote 100%.

1 Dec 81

Letter from the Asbestosis Working Party to all interested underwriters containing a report by Elborne Mitchell summarising the activities of the working party during its first year of existence.

As solicitors appointed by the Working Party we submit this report to Underwriters and summarise the activities of the Working Party since its formation in August 1980. The present composition of the Working Party is as follows:

Committee Member

Agency

Broker

P Tayler

Pulbrook

Stewart Wrightson

H R Rokeby-Johnson

Sturge

 

J Ayliffe

Merrett Dixey Claims Director

 

P E J Cameron Webb

PCW

 

P A Froude

Janson Green Claims Director

 

J R Heath

Weavers/PCW

Minets

R A G Jackson

Merrett

 

L E Kemp

Lambert Brothers Claims Director

 

A J P King

Orion Insurance Co

 

W W Maitland

Janson Green

 

E E Nelson

Alder/BPR

 

C H A Skey

Edwards & Payne

Sedgwicks

H A Taylor

Turegum Insurance Co

 

Mr Taylor succeeded E E Nelson as Chairman of the Working Party in September, a policy of annual change of Chairmanship having been adopted. Mr Rokeby-Johnson is now Deputy Chairman.

The functions of the Working Party include the following:

a). to provide a forum for discussing problems relating to asbestosis claims and to seek Market Agreements to assist underwriters in their handling of claims:

b). to advise on coverage matters when requested to do so by the Leading Underwriter:

c). to consider facultative reinsurance as well as direct insurance

d). to explore solutions to the asbestosis problem other than by litigation or traditional claims handling:

e). to assist in the establishment and development of a database to provide claims information for reserve purposes.

The Working Party does not undertake any executive function, and acts in an advisory capacity only.

In his letter of 9 June 1981, the then Chairman of the Working Party wrote to you requesting a General Authority containing a hold harmless. This request met with good response. A number of Underwriters have declined because they consider themselves not involved and others have refused. To date, 88 LloydĂs syndicates and 23 Companies have given authority ( only 420 syndicates actively underwriting in 1981).

A Claims Committee has been established consisting of Senior claims personnel of leading Underwriters on the Working Party. Present members of the Claims Committee are-

Claims Committee

Agency

C J Ayliffe

Merrett

P A Froude

Janson Green

L E Kemp Claims Director,

Lambert Bros

J R Heath

Weavers/PCW/Minets

K Rayment

Sturge

To enable the Claims Committee to facilitate the claims handling by the leading underwriters the Working Party has obtained, or will seek, specific authority in respect of individual Assureds.

Such authority has been obtained in respect of Johns-Manville and is currently being sought from underwriters of Owens Corning Fiberglass.

A database has been established in the United States by Mendes & Mount with the assistance of Alexander Grant, computer consultants, and Toplis & Harding, Chicago

Reports from your US representatives providing year end reserve information, based upon the database output, are now arriving in London and will be circulated by the brokers, or otherwise on the instructions of Leading Underwriters.

The US Attorneys involved in claims handling for underwriters include Lord, Bissell & Brook; Mendes & Mount; Peterson Ropes; Schlowab & Seidel; Wilson, Elser, Endelman & Dicker, and Rose Criggs & Harrison.

Reports to underwriters have been received periodically from the above-mentioned lawyers. These reports have been circulated to the interested underwriters in the usual way where they have not contained confidential information. Certain reports have not been circulated but have been retained by the Leading Underwriters. In the near future a room will be available at LUNCO for inspection of numerous documents and computer printouts. Further information as to that facility will be circulated in due course.

Over the past nine months, the Working Party has given particular consideration to the following:

  1. Johns-Manville exhausted their primary cover with the Travelers earlier in the year, and, with the authority of the interested underwriters, the Working Party has arranged a special collection scheme with the LPSO. A difficulty has arisen on the Johns-Manville policies in connection with the description of the underlying insurance on a number of years. The position of Underwriters in this respect has been reserved.
  2. In the case of U S Gypsum, the broker has been unable to produce all the policies and slips. However, U S Gypsum have sufficient proof to establish coverage in the London Market on all years from 1949 to 1960. Lord, Bissell & Brook have been instructed to act for the interested underwriters.
  3. Owens Corning Fiberglass has recently been reported as having exhausted its primary domestic insurance with the result that claims will shortly be presented to interested Underwriters in London to whom a telex advice from Mendes & Mount, dated 28 October 1981, has recently been circulated. A full report is expected before year end.

A major issue in relation to asbestosis claims is the division between Underwriters on the so-called manifestation versus exposure theories in relation to the allocation of claims to years of an Assureds insurance coverage. It is not certain that the exposure and the manifestation theories are either mutually exclusive or that they include all available alternative methods of allocation.

There are currently numerous Declaratory Actions proceeding in the United States in which the manifestation/exposure issue is before the courts. Four major cases have been decided as follows:

(a)

Eagle Picher - v-Liberty Mutual

(Court of First Instance)

decided in favour of manifestation;

(b)

Porter -v- American Optical

(Court of Appeal)

decided in favour of exposure;

(c)

48 Insulations -v- I.N.A.

(Court of Appeal)

decided in favour of exposure;

(d)

Keene Corp. -v- I.N.A.

(Court of appeal)

decided in favour of combined manifestation and exposure.

Appeals are pending in each of these four cases and while Underwriters generally are looking to the Supreme Court of the United States for guidance, it is not yet determined whether the Supreme Court will hear any one or more cases; nor is it clear to what extent a determination by the Supreme Court would assist in clarifying a different case on different facts.

An attempt is being made to consolidate four Declaratory Judgement Actions in California with a view to co-ordination and to minimising the expense of determining the issue.

The databases currently shows 14,526 individual claimants, but on the basis of various projections which the Working Party is not in a position to verify, the total claimants will, in the end, significantly exceed this number.

Conclusions by Ayliffe: During the period since the setting of the Working Party there has been a substantial increase in the number of suits filed and the manner in which this affects individual insureds will be detailed in the year end reports from your US representatives. New suits currently reported now average 300-400 per month which is indicative of the increasing severity of this problem to the asbestos industry and its insurers ... Whilst it is not possible at this stage to perceive any clear indication of the likely development in the future, the reserve bases adopted by your US representatives in their year end recommendations do make allowance for likely deterioration in the overall situation.

2 Dec 81

Daily Mirror: Change of policy for Tebbit

"We do not believe," said Mr. Norman Tebbit last week, "that it is right or necessary for trade unions to enjoy an immunity which is wider than that of any other organisation or person, even the Crown,"

Except, perhaps, (he might have added) for LloydĂs of London, the worldĂs richest Insurance market. They are seeking sweeping legal immunities, and theyĂve had a little help from Mr. Tebbit..

One cold morning two years ago 110 very rich and important people, including even an aide to Princess Margaret, were told that they must pay thousands and thousands of pounds each because a lot of buildings had mysteriously burnt down in the Bronx, near New York.

The unlucky 110 were members of the Sasse syndicate at LloydĂs which had insured the buildings.

Sued

Panic broke out. For the first time in history, LloydĂs members actually sued their own committee.

Writs flew back and forth and the air grew blue with the noise of wealthy men and women abusing one another.

It was all sorted out peacefully in the end. A whip-round was organised to bail out the beleaguered Sasse members, and the legal eases were dropped. But the Sasse litigation has haunted LloydĂs bosses ever since.

Rest

Their minds may soon be put at rest. A private Bill to reorganise LloydĂs has been brought to Parliament. One clause gives the new LloydĂs council complete legal immunity - as recommended by the Fisher Report into Lloyds last year.

The Bill was debated in March. Even some Tories were shocked. The Hon Archie Hamilton, MP for Epsom and Ewell, described the immunity clause as "outrageous".

The BillĂs sponsors claimed that the LloydĂs council could more easily look into complaints and enforce their rules if they could not be sued.

But Mr. Nick Budgen, Tory MP for Wolverhampton South West, who was a teller against the Bill, said it was the duty of the House of Commons to "diminish areas of special privilege".

Vote

Two hundred and six MPs, mostly Tories, voted for the Bill. Among them was Mr. Norman Tebbit.

The Bill is coming back soon for its final stages. The immunity clause is still intact.

We shall see whether Mr. Tebbit sticks to the view that legal immunity is intolerable for combinations of working people, but quite proper for the richest insurance market in the world.

4 Dec 81

Letter from LloydĂs Underwriters Non-Marine Association Re. "U.S. Reinsurance Contracts covering Casualty Business" enclosing another position paper "Occurrence Coverage on Excess of Loss Contracts Covering Casualty Business" to be read in conjunction with the September 1981 position paper on US reinsurance contracts covering casualty business. [Obviously claims from the asbestos related diseases are catastrophic and disastrous so far as the whole Insurance Industry is concerned but this fact alone does not automatically qualify them to be treated as "a catastrophe" or n a loss" within the definition or intent of the excess contracts.] This further position paper was written in December 1981 to crystallise the London underwriters views following the dialogue produced in the first paper as to how asbestos products liability losses should be handled under the excess of loss contracts. The question was becoming confused and needed a market circular letter as to how reinsurance contracts out of the United States to LloydĂs should respond (subsequently termed the "Asbestos White Papers of 1981"). The London Market Signatories to the December paper:-

Signatory

Agency

Broker

W M Lawrence

Bowring

Bowring

R A G Jackson

Merrett Dixey

 

C H A Skey

Edwards & Payne

Sedgwicks

C K Murray

Kiln

 

M S Freeman

Newgreen

 

J W Pryke

Heath

Heath

R D Hazell

Three Quays

Sedgwick

4 Dec 81

Minutes of DirectorsĂ meeting of Pulbrook Underwriting Management Ltd 1979 Account Pulbrook Non-Marine Syndicate 90:-

a). The increase of 1.57% in the settlement ratio during September on the 1979 account (pure) was due to the premium transfer under the "Internal" reinsurance contract which had now been terminated;

b). the reserve movement for September was ˙2,992, giving an aggregate strain of ˙576,219 for the first nine months of 1981, compared with ˙755,063 for the first nine months of 1980;

c). Substantial additional provision would be necessary for asbestosis, following the marked increase in the number of claimants. Some legal firms in the United States were experiencing difficulty in keeping abreast of their estimate of liabilities and a central database was being established to log, monitor and allocate costs. Additional asbestosis provisions totalling US $1-3m would appear in the October figures and a further increase would be reported in November and December;

d). after allowing for the R/I effected to protect the 1977 and prior years the adjusted loss ratio for the 1979 account (combined) was 86.67%;

e). the 1980 account had suffered a disappointing month and the incurred loss ratio after twenty-one months was 62.73%;f). The 1981 account incurred loss ratio at nine months was showing a 4% improvement over the 1980 account at the same stage and there were signs of .... in the level of premium income.

The Directors present:-

Mr J M Bazell (in the Chair)

Mr W D Carrington

Mr I G L Stacey

Mr D P Taylor

Mr Michael Turner

Mr E O Walkin

7 Dec 81

Porter -v- American Optical Corp., Case No 78-1953, United States District Court Eastern Division of Los Angeles, 11 November 1977. Affirmed and revised in part, 641 F.2d 1128, 5th Circuit, 8 April 1981. Cert. denied, 454 U.S. 1109, 7 December 1981. Rehearing denied, 455 U.S. 1009, 8 March 1982. Court of Appeals for the Fifth Circuit reversed District CourtĂs application of the manifestation trigger of coverage and applied the exposure trigger for asbestos bodily injury claims. Court expressly concurred with the 6th Circuit Forty-Eight Insulations decision and held that insurance liability would be prorated among all insurers on risk during exposure period. The insured was held strictly liable under Louisiana products liability law for the manufacture of a respirator that did not protect worker from asbestos. The manufacturer had supplied such respirators to the company since 1953.

7 Dec 81

Financial Times: LloydĂs placing may have started a trend

The ˙1.6m placing by J. Henry Schroder Wagg of 7.5 per cent of the shares in Merrett Holdings, which owns one of the powerful underwriting agency companies at LloydĂs of London has wide implications for the LloydĂs insurance community. The deal is likely to encourage other agency companies to seek capital in this way, which could lead to a major change in the commercial structure of the LloydĂs market.

In the next five years or so, unless Parliament changes its mind, all LloydĂs insurance brokers will be required to sell off their shareholding links with the underwriting agency companies which manage LloydĂs underwriting syndicates. The buyers of insurance, the brokers, will not be able to control through shareholding links the sellers of insurance, the underwriters. Potential and actual conflicts of interest have been identified.

Formal links between brokers and underwriting agency companies largely evolved during the 1960s when the taxation system passed problems for independent underwriting agency companies. The Estate Duty Office ruled that a LloydĂs underwriting agency remained a valuable asset despite the death of the person who had built it ups and therefore estate duty was payable on its value.

Many underwriting agencies which had been run and owned by families had to he sold to meet the tax liability. The obvious purchasers were LloydĂs brokers who were established in the LloydĂs community and had the money. But conflicts of interest soon developed.

Sir Henry Fisher, in his report on LloydĂs self-regulation which concluded that divestment of brokersĂ links with agencies was necessary, said that there would he no shortage of buyers. "We do not believe that there would he a shortage of individuals and institutions wishing to take over managing agencies. The most likely (as well as the most suitable) buyers would be people within the LloydĂs underwriting community, including names (the members) on syndicates managed by the agency, underwriters and the directors and executives of the agency company.

The Merrett agency has given a lead. It is offering its parcel of shares not only to a number of institutions but to members of LloydĂs whose affairs Merrett supervises directly.

Merrett said last week. "It gives them the opportunity of participation in the management company in which over the years a number of our members have expressed interest. It was pointed to by Fisher as one of the ways in which the. necessary capital could be provided for agencies at LloydĂs to replace the capital presently provided for those agencies by brokers in the event of divestment taking place."

Merrett, an independent agency,. is using capital raised from its placing "to facilitate future expansion." A Stock Exchange listing of its shares may be sought at sometime in the future. It has no formal plans to buy underwriting agencies which the brokers are to sell.

The Merrett agency recognises that there may be agencies owned by brokers who may not have a wide enough capital base to be viable on their own in the future and argues that it may provide a line of development for the group. Merrett could provide support services, both in management and other facilities. such as computer arrangements, in a joint venture or partnership arrangement.

LloydĂs publicly quoted interests are a relatively recent phenomenon. LloydĂs insurance brokers began seeking stock exchanges listings more than 20 years

As the brokers became more powerful and their stock market values grew LloydĂs became extremely nervous about launching disciplinary action against a LloydĂs broking subsidiary of a publicly listed broker or any of its employees because of the harmful impact on the groupĂs share price and investor sentiment that such disciplinary action might have.

When the new LloydĂs council is formed after the enactment of LloydĂs legislation, LloydĂs will have to draft firm rules and structures for future regulation of the market.

8 Dec 81

Financial Times: Howden challenges clause in LloydĂs Bill

A MAJOR international LloydĂs insurance broker with extensive LloydĂs underwriting interests has told Parliament that it would be "injuriously affected" if new legislation for the LloydĂs market forces the group to sell off its shareholding links with underwriting syndicates at LloydĂs.

Alexander Howden Group, the financial holding company with extensive LloydĂs of London interests, is challenging a key clause in the LloydĂs Bill of Parliament, which calls for brokers to divest themselves of their shareholding links with the management underwriting agency companies at LloydĂs. The agency companies run the underwriting syndicates.

Howden has lodged a Parliamentary petition which is due to he examined by a House of Commons committee next Monday.

The Howden petition says that "divestment would reduce the competitiveness and market share of the United Kingdom firms in the international insurance market at a time when there is unprecedented competition world-wide."

The petition says the sale of the shareholding links would "result in a reduction in the flow of insurance and reinsurance business through London, and in particular to LloydĂs, and would therefore reduce the substantial contribution the insurance industry makes to the UKĂs invisible exports. The only beneficiaries of divestment would be LondonĂs foreign competitors."

Parliament has Insisted that LloydĂs should include the divestment provision in its legislation because it was concerned about the conflicts of interest which exist in the present structure at LloydĂs. LloydĂs had to pall its 20,000 members to get their approval for the insertion of the divestment clause and 13,511 votes were received in favour of the clause.

Howden criticises LloydĂs In its petition for urging "the membership to vote for divestment not on its merits but as an expedient in the belief that otherwise Parliament would not enact the Bill."

Howden intends to call six witnesses to support its arguments: an analyst from a firm of stockbrokers specialising in analysis of the insurance sector; Mr. Kenneth Grob, chairman of Alexander Howden; Mr. John Wallrock, chairman of Minet Holdings, another broking group with extensive LloydĂs interests; and three underwriters. Sir Frank Layfield QC will be presenting the Howden case.

8 Dec 81

Times: MPs asked to end threat to LloydĂs links

A Parliamentary petition to exclude a crucial provision in the LloydĂs Bill was lodged yesterday. Alexander Howden, one of the largest quoted insurance groups, is attempting to remove a clause which requires LloydĂs insurance brokers to sever links with their own in-house underwriting syndicates.

LloydĂs was forced to accept the "divestment" clause after a Commons select committee had insisted on it because of potential conflictĂs of interest between buyers and sellers of insurance. The Bill itself is designed to improve self-regulation at LloydĂs after a series of scandals.

The select committee is expected to resume hearings next Monday. Howden, which is leading the anti-divestment campaign, will be putting up six witnesses to argue its case.

The campaign for divestment has been led by Mr. Ian Posgate, a LloydĂs underwriter and ironically also a director of Howden, and Mr. Malcolm Pearson, a LloydĂsĂ broker. It was their Parliamentary petition which. led to the select committee insisting on the divestment clause.

However, it is understood that Mr. Posgate will not be opposing HowdenĂs petition this time because of the cost. Mr. Posgate and Mr. Pearson have spent ˙38,000 in legal fees to have their arguments heard and feel others should take up the battle.

LloydĂs itself is opposed to the Howden petition because it could jeopardise the whole principle of self-regulation.

Howden is making clear that it opposes divestment because of the possible long-term damage to the insurance industry by reducing the competitiveness and market share of British brokers. It is not opposed to the rest of the Bill.

10 Dec 81

An Unlimited run-off reinsurance xs $6,280,000 placed for D A Barker, Underwriter of Non-Marine Syndicate 15 managed by Stewart & Hughman to incept at 1 January 1981 covering 1976 and prior years. Outhwaite Non-Marine Syndicate 317/661 wrote 100%.

12 Dec 81

LloydĂs List: Asbestosis may cost insurers more than $1 billion. Insurers in London and the United States, fear that compensation claims arising from the industrial disease asbestosis could well top $1 billion making it the largest ever insurance loss .... One asbestos company, Johns-Manville Corporation is at present a Defendant in law suits involving around 11,000 different claimants. A US lawyer has estimated that 11 million people have been exposed to asbestos.

Dec 81

Keene Corp. -v- I.N.A. Judgement redefined, in Washington D.C., involving "triple Trigger".

Dec 81

The Committee via the Corporation of LloydĂs forward LloydĂs Newsletter No. 4 to Names. In relation to the progress of the LloydĂs Bill, it states "On 20 July 1981, Counsel acting to the Committee of LloydĂs gave an undertaking to the Parliamentary Committee, chaired by Mr Michael Meacher, MP, that the Society of LloydĂs would promote an Additional Provision which would result in mandatory divestment being included in the LloydĂs Bill. The Committee and the Corporation conveniently omitted to make any reference to their undertaking to implement paragraphs 9.15, 23.22 and 10.29 to 10.31 of the Fisher Report within 2 years of Royal Assent.

15 Dec 81

Formal offer made by Alexander & Alexander Inc. to acquire share capital of Howden.

16 Dec 81

Sedgwick North America LtdĂs covering letter to Interested Underwriters and Companies: Re. Johns-Manville: Various asbestosis claims.

We have been asked to circulate the enclosed report, dated 23rd November 1981 with a breakdown of reserves over the various policies. We also wish to draw your attention to the first paragraph on page 5 which means an additional $125,000 reserve has to be added to each policy year. We are advised by the leading underwriters that this figure should be prorated in accordance with the reserves to each policy.

We have been asked to emphasise that it is underwriters contention that coverage will only respond in excess of primary occurrence limits; in which event no liability will flow through to the London placings. In the event that the coverage position is not so construed and limits are held to be in the aggregate underwriters should be aware that all layers will be a total loss.

17 Dec 81

Daily Mail: Goldfinger touches raw spot of LloydĂs

BRITAINĂS highest-paid director went to the House of Commons yesterday, where he spent his ˙150 an-hour time hearing his chairman give evidence against him.

Assembled worthies from Lloyds were gathered to argue over incestuous relationships in the worldĂs leading insurance market. Broker Baron Kenneth Grob, chairman of Alexander Howden, was having his say yesterday, while Ian ŠGoldfingerĂ Posgate listened.

At Howden they think Mr Posgate is worth every penny of the ˙322,800 a year he gets, let alone the extra ˙19,062 he will make this year from share options as U.S. insurance giants, Alexander and Alexander, take over Howden.

But heĂs not so happy with Howden. He has done much to shape a Parliamentary Bill on self-rule at Lloyds, especially the clause requiring the big brokers, the buyers of insurance, to cut their links with the underwriters, the sellers of insurance.

As sharp a mind as any on the floor of Lloyds, Mr Posgate spends most of his time deciding which insurance risks he should take, and how much he will charge for them.

For at least two years, he has led insurance rates in many parts of the market firmly down. And he still makes profits for the members of Lloyds he acts for.

Howden, too, benefit from the through management fees and commissions on profits. Their LloydĂs commissions in 1980 were ˙4,800,000.

Mr Grob does not want to lose Mr Posgate and his syndicates. Mr Posgate insists it is all too incestuous, and he should be allowed to set up on his own.

His ˙322,800 a year earnings are important in this. Mr Posgate says LloydĂs is too inward looking, and the big names havenĂt tried hard enough for business.

ŠMy earnings come from a contact I have which pays me ˙100 for each of the names who join my underwriting syndicates. It will be more next year, perhaps ˙350,000. If everyone else at Lloyds was under contract to earn their money like that, then theyĂd try harder,Ă says Posgate.

ŠIĂm very concerned that LloydĂs are getting smaller. In 1900 they had 10 p.c. of the world insurance market. In 1945 they had 3 p.c. Now it is less than 1 p.c. LloydĂs have got to try harder. They have to offer a better service.Ă

ThatĂs a point that New Hampshire, U.S., (of all places) hammers home today.

Over there, insurance commissioner Frank Whaland was so upset at the late payment of a voterĂs claim that, in January, he wiped LloydĂs off the list of approved insurers.

Since then, none of the $800 million a year New Hampshire folk spend on insurance has gone LloydĂs way. LloydĂs think the claim was probably settled before the suspension, and hoped to get back on New HampshireĂs list last summer.

New Hampshire ban

Mr Whaland wanted to know more about LloydĂs and their financial standing. He talks of a $5 million deposit, backed by certain guarantees.

From Concord, New Hampshire, he told us yesterday: ŠIĂm happier now. I think New York lawyers have been delaying things. IĂve had a talk to LloydĂs chairman, Peter Green, and I think weĂve got things back on track. We should resolve our difficulties soon.Ă

ThatĂs good. When the mouse in New Hampshire is bold enough to roar at the lions of LloydĂs, something must be wrong. Late payment of claims is one of the problems at LloydĂs which upsets Mr Posgate.

He says: ŠLate payment cost me a very large account with Fisons. LloydĂs have got to improve their service to customers

If Mr Posgate wins the battle to split underwriters from the big brokers, he reckons he will serve customers well - and more men and women at LloydĂs can count on ˙150 an hour for a 40 hour week.

Howden say to me that underwriters and brokers are already split - or how come a director of their (Mr Posgate) is testifying against them, and theyĂre petitioning Parliament against him?

23 Dec 81

Daily Telegraph: LloydĂs Bill will force agency sell-off

LLOYDĂS brokers will have to resell off their holdings in underwriters, a committee of MPs decided yesterday following a prolonged bitter row about conflicts of interest at the insurance market.

After months of complicated evidence in Parliament, the LloydĂs Bill to reform its self-regulation has finally completed its committee stage and is now free to go on to the report stage and third reading. It had been thought this would be an automatic process, but broker Alexander Howden intervened at the last moment.

Petitioning against the present Bill, Howden tried to persuade MPs to permit brokers to hang on to their remunerative underwriting interests. But chairman of the select committee Michael Meacher, Labour M P for Oldham West, said the alternatives did not have sufficient safeguards.

He said the committee had considered very seriously the suggestion that an executive separation would suffice, and that if it failed the matter could be brought back to Parliament. The MPs thought the mechanism would be too complex to be a practical safeguard.

Howden had argued that similar cross-holdings existed outside LloydĂs. It also expressed concern at the prospect of some outsiders getting control of LloydĂs underwriting syndicates.

Defenders of the divestment measure pointed out that a committee, under High Court Judge Sir Henry Fisher, had suggested the separation. But Sir Frank Layfield, Q.C, speaking for Howden, said: "Just because Sir Henry Fisher is the son of an Archbishop" his recommendations do not have a "theological entity."

During the debate a number of other potential conflicts of interest were aired, including the problem of "binding authorities" which have already caused so much trouble at LloydĂs. But no remedy has been suggested for them.

Although the Bill has now finished its Commons committee stage it has a number of other hurdles still to cross. Among these the most important is reckoned to be the determination of a number of Tory MPs to block a clause which would give the officers of LloydĂs immunity from litigation.

In addition, some of the external members are unhappy at the proposed voting procedure for the new council of LloydĂs. They have suggested that this question could still be argued out in the Lords where there is a large number of LloydĂs members.

One undertaking given to the MPs earlier in the hearings is being put into effect by LloydĂs. A fundamental investigation is being instituted of the underwriting agency system and this may go to the very heart of the way business is currently conducted at the insurance market.

Alec Higgins, LloydĂs member since 1948 is to be chairman of a working party with two members representing the ruling committee of LloydĂs, two the working members, two the external members, one solicitor and one accountant. The committee is considering nominations.

24 Dec 81

Times: LloydĂs Bill worries MPs

Conservative MPs are expected to provide the next major challenge to the private Bill to improve self-regulation in the LloydĂs insurance market.

An attempt by Alexander Howden, one of the big quoted insurance brokers, to remove a clause requiring brokers to sell their equity holdings in LloydĂs underwriting syndicates has failed. After hearing the Parliamentary petition from Howden against divestment, the House of Commons committee has ruled that brokers must sell their underwriting interests because the alternatives put forward by Howden did not guarantee that these conflicts of interest could be avoided.

Now the committee stage has been completed, the Bill will go to a third reading. But there is growing opposition among Conservative MPs to a clause which gives Lloyds immunity from legal action by its members. The LloydĂs committee has argued that it needs immunity to be able to move quickly against members.

Some MPs are unhappy with the whole principle of immunity, which is not enjoyed elsewhere in the City and which could damage plans to abolish trade union immunity.

30 Dec 81

Keene -v- I.N.A.

The Commercial Union filed a Brief of Amicus Curia in support of a petition for a Writ of Certiorari to the United Court of Appeals for the District of Columbia Circuit. The Statement of Fact filed Under the Motion For Leave To File, dated 30 December 1981 states: "The book value net worth of asbestos companies involved in asbestos-related litigation is approximately $25-6bn. That of the 51 insurance companies involved in asbestos-related litigation is approximately $9-7bn. The combined book value net worth is therefore approximately $35-3bn. A recent projection by economists estimates the liability for asbestos-related deaths of asbestos workers alone for the next twenty years at approximately $38-0bn in todayĂs dollars. If the compensation criteria set by the D.C. Circuit becomes the law, both the insurance companies and the asbestos companies face insolvency. If the Keene Opinion is adopted, substantial economic dislocation to these and other industries can be avoided only by involving other public and private sources in providing compensation for victims of a health of national proportions ...."

31 Dec 81

North Atlantic was incorporated during 1974/75 as a wholly owned subsidiary of Bermuda Fire & Marine Insurance Company (B F & M) and was used purely as a fronting company. The gross premium income of B F & M grew from approximately ˙1.6 million in 1974 to ˙10.9 million in 1978 and remained at this level during the period to 1981. This large block of business from 1974 onwards represents premiums accepted from the London market and almost wholly retroceded to other companies. In 1970, B F & M was using a London based agent, C R Driver & Co, to generate and write business on their behalf. C R Driver was closely associated with Alexander Howden and BPR, being involved as a shareholder in certain BPR agency companies.

31 Dec 81

Daily Telegraph: Fate of LloydĂs Bill hinges on key meeting

THE fate of the contentious Parliamentary Bill to reform LloydĂs is to be decided at a meeting being arranged between a group of Conservative M PS and the ruling committee of LloydĂs. This follows a legal opinion sent to the MPs defending LloydĂs proposed immunity from litigation.

For five months two senior barristers worked on the document asked for by the MPs who we-re uneasy at the unique freedom enjoyed by LloydĂs from legal action. Yet one lawyer who has considered it attacked the document as principally containing practical rather than the legal arguments asked for.

The private document sent only to four MPs said: "One cannot exclude the possibility that in the future members of the LloydĂs community may have justifiable cause for complaint as to the manner in which LloydĂs has exercised regulatory powers or duties that effect them."

The lawyers do not explain what such members would do, but raise the danger of "speculative litigation" by anybody who had lost money at LloydĂs. Even if the litigants lost "disproportionate time and energy" will have been devoted to the case and LloydĂs would have suffered adverse publicity, they add.

There is also a danger that people may be deterred from becoming members of the committee, or having got there might be too worried at the prospect of litigation to act swiftly and decisively. Lawyers employed by the critics of the controversial clause dismiss the document as the repetition of argument already discussed and found unpersuasive.

They add that protection against frivolous litigation already exists in the Bill by including section 448 of the Companies Act 1948 which rules out damages if company officers acted "honestly and reasonably ". Any gaps in the wording of that clause can easily be made watertight.

The critics also point out that committee members can be indemnified by insurance against litigation and hence need not be deterred from taking office.

A group of MPs has said the presence of the clause in the Bill is unacceptable and they will either remove it or talk the Bill out. But one MP who has been involved, Richard Needham, Tory MP for Chippenham and himself a member of LloydĂs, says he is still undecided.

He is concerned that permitting justified litigation may also allow the "sharks" to sue LloydĂs on less reasonable grounds. He is even more worried at the apathy of LloydĂs members who voted for the Bill and have made little noise since.

"There is a limit to how much an MP can do to help people out of their own mess," he said yesterday.. It would be a tragedy to lose the Bill at this stage "having got it so far." he added.

But there are signs that members of LloydĂs are mustering opinion against the clause. The two external membersĂ associations have been consistently opposed to the immunity and now a small group of senior working members is expressing disquiet. So unhappy are some of the that they would rather lose the Bill than have such an inequitable clause included in it.

.

31 Dec 81

R J Kiln, aged 61, resigns suddenly as a Committee Member of LloydĂs.

31 Dec 81

LloydĂs Central Solvency System established and introduced with effect from 31 December 1981.

31 Dec 81

On 2 October 1980, agreement was reached between 110 Names of the Sasse Syndicate 762, the Trustees of the LloydĂs Premiums Trust Funds established by those Names, Additional Underwriting Agencies (No 2) Ltd, the Society of LloydĂs whereby the Corporation of LloydĂs indemnified those Names in respect of:

(i) Their share of the syndicateĂs 1976 account underwriting loss in excess of ˙6,250,000.

(ii) Their share of the syndicateĂs 1977 account underwriting loss. The liabilities for the 1976 underwriting account has been limited to the loss as estimated at 31 December 1978 by means of an unlimited stop loss reinsurance policy placed in the LloydĂs market. There is no similar reinsurance protection on the 1977 underwriting account. Until the underwriting accounts have been closed by reinsurance, the ultimate amount of the Corporation of LloydĂs liability under the indemnity cannot be finally determined.

The amount carried forward in the balance sheet comprises:˙"000"

Cash advances to syndicate No 762

6,773

Other Expenses incurred to 31 December 1981

1,208

 

7,981

Less: Contributions received from:

 

(i) Underwriting Agents to 31 December 1981

754

(ii) The 1980 underwriting Members as part of their 1981 subscriptions

7,182

(iii) Other income

-------

 

45

No responsibility has been accepted by the Corporation of LloydĂs for the liabilities of the six Names who were not party to the agreement dated 2 October 1980

31 Dec 81

Number of entries advised to underwriters:

14,356,499

(13,608,533 1980)

Table of policies signed and endorsed etc. processed by the LPSO

Marine, Non-Marine & Aviation

   

Number of policies signed:

303,359

( 311,456 1980)

Number of syndicate reinsurance items:

261,641

( 227,831 1980)

Endorsements in respect of additional and return premiums

   

Number of claims and recoveries items:

203,437

( 180,717 1980)

31 Dec 81

On 31 December 1981, the combined value of the LloydĂs Deposit and Special Reserve Fund was 45.5% of calendar year net premium ( 1974 17.1%).

31 Dec 81

The Sedgwick Group Annual Report for 1981 discloses under:

  1. LloydĂs: Last year I referred to the discussions promoted by the Committee of LloydĂs regarding the way in which the necessary independence and separation of control of LloydĂs managing agencies and LloydĂs insurance brokers should best be achieved. A Bill is at present before Parliament which, if passed in its present form, would, inter alia, result in this group being required to divest itself of its LloydĂs Managing Agencies within the next five years. .... We are reviewing carefully the implications of the Bill so that the interests of our underwriting Names, Shareholders, and staff involved in these activities are safeguarded. The terms of the Bill do not affect our LloydĂs MembersĂ Agency activities.
  2. About the Group: Sedgwick is the largest producer of premium income for LloydĂs in the London market. The provision of computer based loss information recording, financial analysis and loss forecasting, as aids to the more effective management risk, is becoming an increasingly important feature of the facilities provided by the Sedgwick Group Special Services. Sedgwick Payne serves the interests of the underwriting community. This requires the fullest possible appreciation of an insurers requirements and a wide knowledge of the market and changing conditions within the industry.
  3. United States of America: Current strategy and policy of the Sedgwick Group in the USA is actively to maintain and develop its substantial portfolio of wholesale business which it places in the London market and world markets on behalf of a very large number of US brokers. In this field Sedgwick is the largest broker in the world.
  4. Non-Marine Group: Sedgwick International Ltd .... The General Marketing Division, one of the companyĂs three basic operational divisions, handles a wide range of non-marine risks dealing principally with insurance companies and brokers, including our own international offices. We have been successful in meeting the demands of our clients for global packages, particularly in the property damage, business interruption and liability fields. ....
  5. Sedgwick North America Ltd: acts as an independent London market broker handling non-marine business on behalf of correspondent brokers in the USA and Canada. .... The Company offers its clients the benefits of long experience in the marketing of railroad, pharmaceutical and hospital business and is currently in the forefront of developments in the environmental field, offering new types of protection, not only to those companies whose industrial processes generate waste material, but also to those specialising in its disposal. Sedgwick North America Ltd also enjoys a pre-eminent position amongst London brokers for the quality and quantity of its electrical and gas utility business whether in the nuclear, hydro or fossil fuel energy fields, and this has been further enhanced during 1981.
  6. Reinsurance: Sedgwick Payne Ltd operates the UK based reinsurance broking business .... As one of the largest pure reinsurance brokerage business in the world, the company concentrates on promoting the highest standards within the reinsurance sector. It attaches particular importance to the quality of security which underpins a reinsurance contract and which clearly affects the performance of the industry as a whole. Competition for business has increased over recent years as a consequence of a number of primary insurers entering the reinsurance arena. This trend is being accelerated by intense competition for primary business and the attraction of increased cash flow.
  7. Review of Operations, Finance and Administration: Sedgwick Group Finance & Administration Ltd provides those financial, personnel, administrative and computer-based services which can be more efficiently provided at the group level. The growth of the group world-wide and the increasing complexity of the financial, tax and legal climate in which the group operates, has resulted in the need in 1981 to continue to expand the highly skilled resources in many specialist fields which provide support for our trading operations on a significant scale. During the year we have invested further in the telephone and telex systems which link our UK office with our insurance markets, clients, correspondents and group companies world-wide. The ability to communicate rapidly around the world is a vital part of our ability to handle our clientsĂ business. The growing inter-relationship between the group companies which use the companyĂs services and the company itself, referred to last year, has continued. .... The skills of the company in other areas, for example, accounting, cash management, data processing and staff training, have also been sought by group companies around the world.
  8. LloydĂs Underwriting Agencies: Our LloydĂs Underwriting Agencies act as both membersĂ agents looking after individual members of LloydĂs and as managing agents managing syndicates at LloydĂs. Bland Welch .... , Edwards & Payne .... , and Three Quays .... substantially increased their contribution to group revenue in 1981 following the close of the 1978 Underwriting Account. It is anticipated, however, that this trend will be reversed in 1982 once the outcome of the 1979 Underwriting Account is known, although these results may be better than those forecast a year ago. Currently the market is still suffering from over capacity, leading to severe competition and reduced premium rates, although there are signs that an upturn in some markets is beginning.
  9. Underwriting Services: The integration of the management functions of the various insurance company underwriting interests of the group for which Sedgwick Group Underwriting Services Ltd is responsible is now virtually complete with the majority of the staff in one location close to LloydĂs. At this stage the 1981 marine account of River Thames Insurance Company Ltd shows a marked improvement. .... The company commenced writing a small marine excess of loss account in 1981 and is a member of the 1982 aviation syndicate run by the Orion Insurance Company. During the year Regis Underwriting Agencies Ltd, our non-marine underwriting agency which writes business on behalf of several well-known overseas insurance companies, with whom we have long standing connections, changed its name to River Thames Agencies Ltd.
  10. Special Services: Sedgwick Group Special Services Ltd ... has been expanded to handle the management of the growing number of captive insurance operating there. A major investment in personnel and computer equipment was made in 1981 with the aim of establishing the group as the leading British broker in the field of loss information and financial analysis as aids to the more effective management of risk. The group has a major investment in a highly skilled unit to monitor the solvency and stability of insurers and reinsurers world-wide with whom we place our clientsĂ business. Increasing use of these services was made during 1981. Mendip Insurance & Reinsurance Company Ltd - Bermudan Insurance Company.

Mr A Parry, a Sedgwick main board Director, Managing Director, Deputy Chairman and Chairman, and the Director responsible for the International Department and the Director in charge of the American sector, retires, aged 53. Mr Parry was on the Committee of LloydĂs during the years 1979 to 1982 and 1985 to 1988, being a Deputy Chairman for 1987 and 1988. During the period 1982 to 1987, Mr Parry was Chairman of Carter Brito e Cunha which was acquired by Johnson & Higgins.


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