Rand Institute of Civil Justice Study: Asbestos in the Courts

(vii) Period of study late 1983 - early 1985.

(24) by the mid-80s, the surge in filings begun in 1978 had ended ... yet the number of dispositions continues to fall behind the number of new filings.

(32) The asbestos crisis is far from ending: new filings projected to continue into the next century. In addition new types of asbestos personal injury and property damage cases will continue to be filed in uncertain numbers into the future. In addition to the traditional plaintiffs, new types of plaintiff and new types of injury (property damage).

(41) Cites 1983 Philadelphia Court which notes that litigating with these claimants is like gambling at a casino.

When carrying out work on the environmental considerations input of the SRA work papers, members of staff may like to know that the Insurance Technical Section does maintain specific environmental files, relating to all areas of the industry. Accordingly, if you wish to avail yourself of this facility, please speak to a member of the section.... A paper, entitled Insurance Industry Scan 1984, has been prepared to summarise many of the more significant developments recorded on these files and will be circulated in early February.

Mr Ian Winchester has resigned as Managing Director of Winchester Bowring Ltd. Mr Hugh Prior is appointed Managing Director of the company. Mr Winchester will remain a director of Winchester Bowring Ltd until he takes up his new appointment with Toplis & Harding Inc. in the United States early in 1985.

Nigel Holland stated that historically the reinsurance to close had been on a net basis. True and fair forces the syndicate to gross up their reinsurance to close between the premium element and the claims element. He cited Merretts as an example as having no pattern in their fourth and subsequent year run-off position, although the figures were not particularly large when compared to the reinsurance to close itself.

Michael Bolger stated that Lloyd's has a very low expense ratios and many syndicates will not go to the extra expense of having full risk written records in order to arrive at a "technical" premium accrual....

Stephen Hill was quite categoric when he said that if there were no records, then, the auditors should qualify their report.

Nigel Holland stated that Davison had felt that a mass of qualified opinions is harmful to Lloyds as a community. He believed that pocket books are being kept at the box, but that they are not related to the accounting records maintained....

Peter Standish and Michael Bolger discussed the problems relating to treaty and binding authority business....

Nigel Holland stated that historically by ignoring the premium accrual, an extra loading was given to the reinsurance to close.

A M Farrar, solicitor and Lloyd's Council Member, writes to a BPR Name stating, inter alia, "

Keene Corp. -v- I.N.A. Judgement redefined.

Mr. Ayliffe of Merretts received a letter enclosing a recent article which stated that in the last three or four years, the number of claims filed by railroad workers alleging asbestos disease has far exceeded the total of such actions in the entire history of the American railroad industry.

The Government publishes its proposals contained in the White Paper, "Financial Services in the United Kingdom: A New Framework for Investor Protection".

In the last three or four years, the number of claims filed by railroad workers alleging asbestos disease has far exceeded the total of such actions in the entire history of the American railroad industry. These claims reflect a growing awareness of the enormous toll exacted by the railroads' use of asbestos, particularly in the Steam Era.... Railroad have long been among the heaviest users of asbestos containing products in American industry.

The State of Maryland has filed suit against 40 manufacturers and distributors of asbestos, including PCC, seeking $500 million in compensatory damages to clean up asbestos in more than 3,000 public buildings in the state, including schools, prisons, dormitories, hospitals and offices. The State's complaint alleges that it has had to spend millions of dollars to inspect, identify, test, analyse, remove encapsulate, decontaminate or enclose asbestos or asbestos-containing products in public buildings and facilities. The State also requests an injunction requiring the companies to perform all "necessary asbestos abatement remedial actions" and to pay for the cost of the suit.

A similar suit has been filed by the City of Baltimore seeking some S225 million from 55 defendants for asbestos abatement costs in public buildings ranging from schools and office buildings to prisons. The City has also charged the companies with fraud for allegedly making false statements about the safety of asbestos and with conspiracy "to deprive the public, and particularly the users, of medical and scientific data" linking asbestos to lung disease and cancer. This action is in the early stages of litigation.

In November 1984, the City of New York and The Board of Education through the office of the Corporation Counsel and the firm of Kriendler & Kriendler, filed an action against more than 60 manufacturers seeking S250 million in order to recover the cost of asbestos removal and containment. The action was filed in the Supreme Court, New York County, and alleges causes of action based upon restitution, nuisance, negligence, fraud and misrepresentation, strict liability, implied and express warranties, and conspiracy. In addition the complaint seeks punitive damages in an unspecified amount

The number of filings by school districts continues to increase, with more than 70 property damage actions now having been commenced nation-wide. PCC has been named as a defendant in 20 school district actions to date, including the national class action pending in Philadelphia. Developments in the Philadelphia national class action are set forth separately hereinafter.

In Ohio, a motion is pending before the Cuyahoga County Common Pleas Court requesting certification of a state-wide class action for school property damage suits. That class complaint is on behalf of 54 private and parochial school districts against some 60 defendants.

Other recent school district filings include actions by The University System of New Hampshire in the Federal Court, New Hampshire, wherein plaintiff seeks $5 million in compensatory damages in addition to unspecified punitive damages, and the Selah School District in Yakima, Washington, wherein plaintiff demands $200,000 compensatory damages and unspecified punitive damages involving the installation of asbestos acoustical plaster.

Mr. Floyd Knowlton of the Travelers Insurance Company, Inc. is recorded as stating in Mrs. Rowe's (claims manager at the R J Kiln Agency) contemporary record of a conversation with Mr. Knowlton on 31 January 1985:-

"Knowlton said the asbestos B.I. problem may be more or less under control, but he feels the P.D. will be at least as large - and may in turn spark more B.I. claims..."

The Johns-Manville settlement was reached by Manville Corporation, the parent Company of Johns-Manville, for $111.8m with three excess insurers, which increased the insurance cover of Manville Corp. to $426m, with a consequence increase in the quantum of asbestos-related claims falling upon insurers.

In early 1985, The Investigations Committee of Lloyd's appointed Mr D R P Baker FCA, a partner in Touche Ross & Co, to act jointly with Sir Edward Singleton on the Committee of Enquiry into Bellew, Parry & Raven.

Letter from Toplis and Harding (Asbestos Services) Limited to insurers at interest, signed inter alia, by C. J. Ayliffe of Merrett Syndicates Limited.

(The steady increase in the number of advices being received in the Market from insureds who have potential problems relating to environmental pollution emphasises the need to establish inter market co-ordination... Bearing in mind that the Market is presently involved in excess of 300 sites which constitute problem areas, it is essential that a system be put into place which can provide an index open to all London participants which records the name of Insured, site designation and the name of the Counsel acting on that account. At the present time the Environmental Protection Agency of the U.S. Government have designated some 783 dump sites as locations subject to special investigation. Quite apart from the damage to persons and property that may arise beyond the area of the site, it has been estimated that the average cost of clean up at any one site will amount to $6.5M... Legislation, such as the Compensation Environmental Response, Compensation & Liability Act has provided that liability for the cost of clean up will be imposed on a joint and several basis with the dump site owner and major dumpers being the initial target of the Government. In a number of instances there can be in excess of one hundred dumpers and transporters of industrial waste involved at one dump site. Control will need to be exercised to ensure that the legal profession does not precipitate mass litigation under contribution theories. Recent budgetary increases granted by the Federal authorities to the Environmental Protection Agency will permit them steadily to increase the site designations in which they are actively involved. This general background leads the Claims Group to conclude that it is essential that the Market addresses the implications without delay).

The steady increase in the number of advices being received in the Market from Insureds who have potential problems relating to environmental pollution emphasises the need establish inter-market co-ordination... Unfortunately, as has been experienced in claims arising from asbestos related injuries, matters involving alleged pollution often extend over many decades, with London placings for individual insureds being handled by various brokers and being subscribed by different markets... It is inevitable that environmental pollution will produce many coverage issues for insurers, and if the present indications from the United States can be taken as a guide the London market is likely to become involved in coverage litigation ... The co-ordinated effort that is required in order to address the issues that arise can and must start within the Market. In an effort to explore how this can be achieved, an inter Market group of Claims Managers, whose names we detailed below have been meeting to exchange views.... The purpose of this letter is to give you some insight into the problems that exist and the future developments that are foreseeable, more importantly the manner in which the problems should be addressed within the Market. It must be emphasised that it is not proposed that the active handling and decision making process be removed from the participating Market, but more towards liaison with the Group whose prime task will be to monitor all matters in the general interests of the entire Market. To succeed in this endeavour it is essential that general support is demonstrated, and to determine if this is forthcoming it would be helpful if you could complete the attached letter and return without delay to ..., Toplis & Harding (Asbestos Services) Ltd., Greenly House, 40 Dukes Place, London. EC3.

An address was delivered to the Chartered Insurance Institute entitled, Insolvencies: A fear or a favour.

We maintain that a syndicate is a joint venture of one year's duration. Assuming the account is then reinsured, that year ceases. Reinsurance to close, therefore, is not just a matter of what is known at the time but takes into account what is likely to creep out of the woodwork at a later date in order to preserve equity between the closing year and the reinsuring year. A company is an on-going entity and, therefore, any shortfall in the funds one year can be made good in a later year without in any way affecting the entity as such. I accept that an unduly good or bad result may affect the price of shares which , of course, is pertinent for those buying and selling, but I do not believe that it follows that what is good for the companies is necessarily good for Lloyd's.

R A G Jackson attended a meeting with Senior Executive Officers of the Aetna, Hartford, Liberty Mutual, I.N.A. and Continental, which was held in New York on Monday, 25th February to discuss the latest developments of the formation of the Asbestos Claims Facility and consider the next stage to be addressed at an executive level .

I refer to the letter of 12^th October last, in which deputy chairman, Mr. Murray Lawrence, advised you of the membership requirements which would apply for new members who commenced underwriting from 1st January 1986 and to existing members who changed their underwriting arrangements after 1st January 1985.

The Chancellor of the Exchequer has decided to take action to counter the practice known as "Bond Washing". The new rules will apply on and after 28 February 1986 when the scheme comes into effect.

Cornell University researchers have concluded in a recent study on the adequacy of workers compensation payments to the survivors of men who died from workplace exposure to asbestos, that "the compensation is neither adequate nor equitably distributed."

The study, one of the first on compensation for occupational-related illnesses and diseases, focused on benefits payments in 1979 to 249 widows, whose husbands would have been living that year had they not died from asbestos exposure. It was found that workers compensation payments replaced only 36.2% of the losses of widows for whom it was the only source of income. The figures are far below the normal standard that workers compensation benefits should equal, approximately 66% of the workers wages before his death.

Additionally, the study showed that widows who succeeded in common law actions received the most adequate compensation, but it also showed that tort awards were inadequate for some widows and that, furthermore, some of these awards would be exhausted within one year.

A recent survey released by the EPA indicates that 20% of commercial, federal and residential apartment buildings in the United States may contain friable asbestos. The survey was conducted on 231 buildings to determine how much friable asbestos-containing material might be in buildings other than schools. The 20% figure translates into approximately 733,000 commercial, federal and residential apartment buildings with friable asbestos.

The report noted that only 38 of the surveyed buildings had asbestos-containing ceiling tiles. The report also noted, however, that buildings constructed in the 1960's were found to be 15% more likely to have asbestos-containing sprayed or troweled-on friable material than other buildings.

The report went on to say, "It appears that the extensive use of asbestos-containing sprayed-on friable material would have continued and perhaps increased in the 1970's had not the EPA banned the use of those materials for all but decorative purposes in 1973." The EPA banned all other uses of these materials in 1978.

In March, the Chairman, Peter Miller, visited Brussels accompanied by the Deputy Chairman, Mr David Coleridge. Meetings were held with Lord Cockfield, Vice President of the EEC and other senior officials of the Community.

Mendes & Mount letter to R A G Jackson, Chairman, Asbestos Working Party, C/- Merrett Syndicates Ltd. Re: Report on the Asbestos Working Party activities during the past twelve months:

As attorneys servicing the interests of the London Market in various asbestos related matters, we submit the following report to Underwriters and Companies, highlighting the events of significance which have received the attention of the Working Party during the past twelve months.

1. Asbestos Claims Facility:

As the market is aware, negotiations aimed at the establishment of the Asbestos Claims Facility have become somewhat protracted. We understand that the Chairman of the Asbestos Working Party has at frequent intervals provided advice to the Market on how matters had been developing, and bearing in mind the importance which is attached to the success of this venture, we feel that it would be beneficial to provide the Market with a broader review of the background to the discussions that have taken place; the problem that presently exist in establishing the Facility; and finally the consequences to the London Market that could arise in the event that the Facility fails to get underway.

1. Past Developments:

The concept of the Asbestos Claims Facility was two-fold: Firstly, it was recognised by industry leaders that there was a pressing need to arrive at a negotiated solution with Producers of various coverage issues which continue to persist under numerous declaratory judgment actions.

Secondly, which is much more material in addressing the problems which exist domestically was the need to establish a claim handling capability to provide asbestos claimants fair and equitable compensation as an alternative to resorting to the civil tort system.

The backlog of suits in the various jurisdictions, Federal and State, were a source of increasing concern, because it was unreasonably delaying the time before which the claimants could have their suits addressed by the court. It was the unacceptable delay in the ability of the tort system to provide compensation to meritorious claimants which was progressively attracting more attention from the Federal Government.

The negotiations to bring about agreement in regard to both coverage issues and claims handling commenced in October, 1982, by a small representative group of Insurers and Producers. As the Market is aware, two London Market representatives have served on that Resolution Group, which over the past two years, met on no less than 32 occasions, involving 58 days of intense and difficult negotiations.

It is interesting to record that the role of the leading negotiator on behalf of the insurance group was assumed by Ray Stahl of the Travelers Insurance Company, who diligently pursued solutions to various problems using innovative ideas in order to bring about agreement. Although the proposals that evolved recognised the Keene interpretation of coverage, their effect was nevertheless to bring about a controlled application of Keene by applying indemnity over a block of coverage. In addition, it was through Ray Stahl's persistence that ultimately agreement was reached in regard to the establishment of a defence funding mechanism! in connection with policies issued on the pre l966 C.G.L. wordings.

By May 1984, agreement had been reached on all issues within the Resolution Group and the "Agreement Concerning Asbestos Related Claims" was released throughout the Insurance Industry and to all the commercial concerns who had any involvement in the asbestos problem in the U.S. Thereafter, both groups undertook to educate their individual constituencies with a view to obtaining provisional commitments to the Facility concept. Unfortunately development of the necessary support has proven to be a slow process, for with respect to the Insurance Industry a number of issues continue to be raised by direct writers who, among other matters, were concerned at the negative attitude being indicated by the reinsurance market. A further difficulty arose in June 1984, when the Travelers announced that certain aspects of the Agreement relating to the resolution of coverage matters were not in keeping with that company's approach, and, therefore, indicated that it was unlikely that the Travelers would become a provisional subscriber. By December 1984, provisional commitment had been received from the following insurers:-

	Direct Insurers
1.	Aetna Life & Casualty Co.;
2.	American Universal;
3.	Argonaut Insurance Co.;
4.	Bituminous Casualty Corp.;
5.	Continental Insurance Co.;
6.	Crum & Forster;
7.	Employers of Wausau;
8.	Fireman's Fund
9.	First State Insurance Co.;
10.	Harbor Insurance Co.;
11.	Hartford Insurance Group;
12.	Highlands Insurance Group;
13.	I.N.A.;
14.	Liberty Mutual Insurance Co.;
15.	Underwriters for Lloyds of London;
16.	Reliance Insurance Co.;
17.	Royal Insurance Co.;
18.	The St. Paul Cos., Inc.;
19.	U.S. Fidelity & Guarantee Co.;
20.	Zurich Insurance Co.;

1.	A.I.G.
2.	American Mutual
3.	Chubb
4.	C.N.A.
5.	Commercial Union
6.	Home
7.	Kemper
8.	Northbrook
9.	Midland
10.	Travelers

Although negotiations aimed at this objective have been underway for some time, to date provisional commitments have not been obtained. The immediate problem that this poses for the Facility Agreement is that within the provisions relating to the broad band of coverage, gaps could be created by the non-participation of certain carriers. This factor was recognised within the Agreement, which essentially provides that provided the gaps are small, the participating Insurers will on a temporary basis assume those additional obligations, subject to the Assured pursuing the non- subscribing Insurer through the courts.

Regrettably, as matters stand at present, the absence of participation by the majority of the companies listed above could create gaps of considerable size so as to make the position unacceptable in regard to certain accounts. Indeed, it may ultimately develop that non-subscribing carriers would feel compelled to make some payment to their Insured in such a situation, which could have the effect of reducing the gap to a more manageable proportion for participating Insurers to assume on a temporary basis.

The delays that have arisen have proven counter-productive to the interests of both Insurers and Producers, to the extent that certain coverage issues for which the Facility proposed solutions are with the passage of time now being addressed by the courts. While in most cases these are at a lower court level, it is inevitable that any decision rendered after the terms of the Agreement were concluded will detract support from either the Producer or Insurer element. Despite this fact, it must be recorded that Producers have been highly successful in obtaining support from their industry, and to date have received provisional commitments from no less than 31 companies involved in mining, producing or in some way handling asbestos products. The only major Producer yet to make a commitment is GAF. However, negotiations continue, and it is hoped that their support will ultimately be forthcoming.

B. Future Implications:

With the Co-ordinated Action in California due to start in March, 1985, .it has been decided that in the short time available one final effort should be made to enlist support of at least some of those major Insurers who have yet to make a commitment to the Facility. Negotiations along these lines are now being conducted at a Chief Executive officer level through the Aetna, Hartford, Continental, INA, Liberty Mutual and London interests. It has generally been accepted ; by its supporters that the Asbestos Claims Facility is the only viable way in which to control the developing asbestos problems which rage in the States, and there is Federal Government support for that conclusion. It is equally apparent that in the event through lack of support the Insurance Industry fails to achieve success in resolving the issues, the pressure that will be brought to bear upon the Federal authorities from uncompensated claimants will be such that ultimately there will be a Government imposed solution.

There is no question that in the event this were to happen, the effect on the Insurance Industry would be dramatic, and far less palatable than the regulated handling provided for within the Facility Agreement. In the event that the Facility concept were ultimately to collapse, it is important that Underwriters do appreciate the serious problems that would arise in the London Market in endeavouring to handle some 30,000 outstanding claims which, from past experience, will increase by some 5,000 new suits each year.

The conflict issues that would face your various Counsel would no longer be capable of being kept low key, and this fact, coupled with the dramatic increase that would arise in expense incurred on handling accounts, would undoubtedly be far in excess of anything the Market has currently experienced. This fact, coupled with the inevitable increase in coverage litigations would prove extremely burdensome to the Market.

During the course of the past year there have developed new issues in regard to damage to property allegedly caused by asbestos containing materials, which create unique coverage issues which have yet to be addressed. If the solution proposed in respect of bodily injury claims under the Facility Agreement receive the support they deserve, the Facility must be the best forum through which to address resolutions of coverage in regard to Property Damage. This would undoubtedly be a more satisfactory way in which to deal with this particular problem than permitting the courts to adjudicate on the matter, which would only serve to create additional dilemmas by reason of the conflicting rulings that could arise.

II. Johns-Manville

As the Market is aware, following the collection of the estimated then present value of the Settlement agreed with the Insured the funds were invested with Citibank through Lord, Day & Lord. The return being achieved, together with the capital gain which will arise, will be adequate to meet the sum specified in the Settlement Agreement at 31st December 1985, or thereafter. We understand that participants have recently received tax advice from U.S. and UK advisors, which sets out the tax implications that arise for Lloyd's and companies.

The terms of settlement arrived at between Travelers, Home & London continue to attract the criticism of the Plaintiff and Creditors Committee, who argue that the liabilities of settling Insurers was in excess of the $315M accepted by Johns-Manville. As a result of the opposition that developed, Judge Lifland has ordered a Fairness Hearing at which the issues can be adjudicated. Originally the Hearing was set for early December 1984, but due to continued discussions between Johns-Manville and other excess insurers, the court continued the hearing to 22 February 1985, although further extension are a distinct likelihood. Irrespective of the ruling handed down by Judge Lifland, the matter will be appealed.

Johns-Manville has expended considerable effort over the past three months to reach agreement with other carriers for either a cash buy out of coverage limits or an understanding on the manner coverage will be applied. It is clearly their hope that by the time the Fairness Hearing takes place they will have substantially increased the amount of the settlement fund, which could have the effect of deflating the plaintiffs' objections.

Considerable court activity is anticipated before the Insured's Plan of Reorganisation has final judicial approval, and there is little doubt that, with the authority of the Bankruptcy Court still subject to question, appeals will be filed, perhaps all the way to the U S. Supreme Court. Some sources have expressed the view that if the Settlement Fund is approved there is a possibility that Judge Lifland will make a partial order to permit Johns-Manville to address the substantial number of claims that have remained pending since the Chapter 11 petition was filed on August 26, 1982.

In accordance with the terms of the Settlement Agreement, Johns-Manville has dismissed London participants from the California Co-ordinated Action on a without-prejudice basis. Effectively, the Insured is at liberty to refile coverage litigation, should the settlement ultimately be rejected by the Court. However, participants should be aware that as a result of the filing of cross-complaints in the Co-ordinated Action by certain company defendants, declaratory judgment counsel continue to be involved in matters relating to Johns-Manville, albeit on a more restricted role than was formerly the case. Whilst this will inevitably involve participants in additional defence costs, the terms of the Settlement Agreement require Johns-Manville to indemnify Insurers in respect of any compensatory award that may arise.

During the last year the anticipated increase in re- insurance involvement has developed, as is demonstrated the volume of reports now monitored by the Re-insurance Claims Committee [see Toplis and Harding (Asbestos Services) Limited]. It is reasonable to expect this trend to continue as the overall cost of the asbestos problem increases and more cedants' potential exposure exceeds underlying retentions. In addition, it is inevitable that the Market will develop a further up-surge in retrocessional involvements.

All year end reserve reports are reviewed by the Reinsurance Claims Committee to ensure that the reserve recommendations are in keeping with factual information emanating from the original account. Due to the increased volume of reports being processed, the membership of the Reinsurance Claims Committee has been broadened to include Peter Dodds, John Heath and Jim Teff. The prime objective of the Committee is to ensure that reports which contain year end reserve recommendations are circulated with a minimum of delay. Narrative reports on each account will thereafter be prepared by reporting Counsel setting out in more detail the present posture of each matter and outlining the manner in which the reserve recommendations were established. Due to pressures involved it was not possible to produce a narrative report on every account during 1984, but Counsel have been asked to correct this situation for the current year.

One problem which is tending to recur at more frequent intervals is the difficulty of tracing Market participants on early years of involvement. The Reinsurance Committee is depending upon information held by the broker, which can be incomplete at times. In such instances the Market has been asked to review their records to assist in identifying participants.

During the ensuing year, 1985, it is intended to develop subscriber information on layers of reinsurance over those levels presently impacted by reserves. Once this information is available, the Claims Committee will circulate advice to upper levels of coverage once reserves attain 80% of underlying limits.

L.U.N.C.O. will shortly be advising that, with the exception of LMX business, there will be no change in the manner in which reserves are recorded for this year end. The most up-to-date figures available for year end closing are those provided by Toplis Harding (Asbestos Services) Ltd., and that office should be given full credit for the service that they have afforded to the market.

Asbestos declaratory judgement actions:

During 1984, deposition testimony of a number of London Market Underwriters and claim staff was taken in connection with the California Co-ordinated Declaratory Judgment Action. Although the possibility still exists that this litigation could be concluded by settlement prior to the 5th March 1985 trial date, especially if the Asbestos Claims Facility secures the critical mass necessary to a viable organisation, the closer that date comes the more certain it is that the first phase of the litigation relating to the existence of policies will commence.

While the litigation instituted by Celotex Corporation against its insurers in Tampa, Florida, has not proceeded through pre-trial discovery, an interpleader action was filed on behalf of the London Market seeking a declaration as to whether the benefits of the London policies belong to Celotex Corporation or Rapid American. Significant developments are anticipated in the interpleader action, although the Declaratory Judgment Action has not proceeded to any extent, partially due to the insured having settled with some of its other Insurers.

Decisions of significance in coverage actions during 1984 include: Keene Corporation -v- I.N.A., where Keene's motion for punitive damages against the I.N.A. for refusal to defend was dismissed on a Summary Judgment Motion by the trial Judge, June Green. Judge Green determined that Pennsylvania law controlled since I.N.A.'s decision with respect to defence was made at its home office in Philadelphia, Pa. Under Pennsylvania law it is against public policy to allow recovery of Punitive Damages against an Insurance carrier. Keene had also sought punitive damages against its other primary insurers, Aetna and Liberty Mutual, but since the respective laws of the states of incorporation, Connecticut and Massachusetts had not been brief and argued, the judge reserved decision.

In a later decision in the same case, Judge Green denied Keene's motion for partial Summary Judgment seeking a determination that I.N.A. was required to continue defending Keene subsequent to the exhaustion of I.N.A.'s Aggregate Limits for products bodily injury. The judge found the I.N.A. policy wording to be unambiguous and that under the plain meaning of that wording I.N.A.'s defence obligations ceased with the exhaustion of the policies' Aggregate Limits.

In a more recent decision in the case of Owens Illinois -v- Aetna Casualty and Surety, Judge Hogan endorsed the Keene "triple trigger" finding and also held that the decision by Owens Illinois to manufacture and sell the asbestos product, "Kaylo" should be regarded as a single occurrence with the result of only one deductible would apply.

Asbestos Property Damage Actions:

As anticipated, in 1984 there was a continuing increase in the number of property damage actions filed against the producers of asbestos products. The most significant of which were those filed on behalf of various Districts. These include the actions instituted in Ohio, Alabama, New York, Michigan and Maryland. As an illustration. in the Maryland action brought on behalf of the Mayor and City Council of Baltimore the Plaintiffs seek actual damages of $225,000,000 and in addition seek an unspecified amount of punitive damages and costs.

When the new school year commenced in September, much adverse publicity was generated by the fact that a number of School Districts had failed to comply with the requirements of the Environmental Protection Agency, regarding testing and removal of friable asbestos.

Following public debate, the U.S. Congress was persuaded to pass the Asbestos School Hazard Abatement Act of 1984 whereby the Environmental Protection Agency was granted a total of $600,000,000 to be used for loans and grants to schools for the abatement of the asbestos problem. Significantly The Act preserves claims for damages against manufacturers and producers.

In the year end 1983 Market report strong emphasis was placed upon the need for timely collection of funds from the Market, in order to satisfy both servicing and data bank commitments, and more importantly to provide indemnity to direct Insureds. At that time it was hoped that through the gradual adoption of Letters of Credit the situation would effectively be improved, which would enable us to satisfy the loan account that we were compelled to establish in order to meet data bank and servicing requirements. Unfortunately, the improvement took far longer than had been expected consequently it was not until December, 1984, that sufficient funds were in hand to enable us to reduce the loan to a manageable level.

Firstly, the refusal by certain company participants to grant Letters of Credit has imposed an administrative burden on brokers who have been forced to process collections in the traditional manner to satisfy each cash call made during the period. To a great extent this problem has been alleviated as more companies have become participants in the Letters of Credit Scheme. However, we must again emphasise that the efficiency of a Market funding mechanism based on Letters of Credit is geared to total acceptance by participants, and we, therefore, again implore these companies who have yet to give a commitment to reassess their position so as to avoid any criticism that could well develop if funding delays continue. More importantly we are fearful that some producers might not be quite so indulgent which conceivably could precipitate actions for bad faith and/or extra contractual damages against the entire Market.

These factors have been under constant consideration by the Claims Committee, who now recommend that we modify the basis of the projections on which Letters of Credit are currently predicated from a one-year projection to two years. Significantly, this will ensure that credit is always available on which to make drawings, and reduce to an extent the administrative effort for the Market. It is intended that future needs will be based upon a two-year projection which will be adjusted at one year intervals to respond to changing circumstances. One such changed circumstance could be the establishment of the Asbestos Claim Facility. The Facility would require funding promptly and at frequent intervals from the entire Insurance Industry. New Letters of Credit reflecting the new two-year projection are currently in preparation, and will be circulated shortly.

Reserves:

The Market should be aware that per Claimant reserves on each account continue to be reviewed annually by the Claims Committee together with reporting counsel. Indemnity reserves are adjusted to reflect the historical level of settlements for each account to which is then added a percentage loading - normally 20% - to provide for future inflationary trends. In addition, a defence expense allowance is calculated on each account in order to recognise that upon exhaustion of the primary aggregates, the obligation to indemnify for these defence costs will pass to the excess carrier.

It must again be re-affirmed that reserves recommended by your servicing counsel are based on filed claims outstanding for each assured, and no attempt has been made to project an IBNR factor in respect of claims yet to be filed.

Databank:

As has been reported previously, the London Claims Information System (C.I.S.) has proven to be the most flexible system yet devised to monitor Asbestos claims. For some time work has been proceeding on the Claims Facility database with input from Alexander Grant as representative of London's interests. It has now been recognised by both Insurers and Producers that London's system is the only one possible for creating the foundation for the Facility database and, therefore, London will have a much greater say as to the ultimate design of the system. Members of the Claims Committee continue to meet with Alexander Grant to evaluate current requirements and methods in a constant endeavour to reduce costs. Towards this end London now owns the software relating to the Asbestos Databank which, including the Purchase, will result in a reduction of costs for 1985 and produce even greater benefits in the long term. This software package also gives Underwriters the ability to create a database for other requirements as will no doubt arise in the future at a greatly reduced cost and with an improved efficiency.

This office has now been in operation for just over a year, and the volume of work, for both Direct Accounts and Reinsurance, has increased dramatically.

The number of Direct reports containing reserve recommendation remains in line with the previous year; however, some 145 Reinsurance reports were circulated, compared with 66 last year end.

Last year in our Market Report dated 19th January 1984, reference was made to the need to create a company limited by guarantee, so that a proper asbestos General Authority could be obtained from the Market. Unfortunately, after a long delay, we are advised that the Companies Registry reports that exception had been taken to the proposed name of the company, "Asbestos Working Party Ltd.", since there is a Government body called the "Asbestos Working Party." The incorporation of the company is therefore proceeding under the name "Market Claims Services Limited." As soon as the company is incorporated, the Working Party will circulate a revised General Authority, and request that the Market assist by signing and returning the document as soon as possible after it is received.

In America, by universal acclaim, insurance seems to have been constituted the general money tree. Just to take one example the New York Superintendent of Insurance, James P Corcoran, introduced an amendment which would prohibit insurance companies licensed in New York from requiring tests for AIDS, on the grounds that the proposed amendment would result in the denial of essential health insurance coverage to individuals. Insurance is looked on as a substitute for social welfare. The many obvious advantages this must have where politicians are concerned hardly needs to be emphasised.

Asbestos Working Party letter to Insurers at interest enclosing a copy of a draft press release that will be made to all trade journals and newspapers, including "Lloyds List". The Facility currently boasts 33 producers and 22 insurance companies that have conditionally signed the Agreement.

I enclose for your information Mendes & Mounts year end report reviewing matters involving the Asbestos Working Party during the course of 1984.

As you will observe, our main concern during the past year has been in relation to the Asbestos Claim Facility, and we have continued to work closely with certain U.S. Domestic Insurers in an effort to develop the support necessary to ensure that the Facility becomes operational.

As recounted in the attached report, negotiations have been somewhat protracted, but I wish to report that a sufficient measure of success has been achieved during the past months that it now appears that the Facility will go ahead.

I attended a meeting with Senior Executive Officers of the Aetna, Hartford, Liberty Mutual, I.N.A. and Continental, which was held in New York on Monday, 25th February to discuss the latest developments and consider the next stage to be addressed at an executive level.

The most significant development which has taken place in the past few days has been the provisional commitment of both the Home and C.N.A. to become Facility members. Both companies are significantly involved in the asbestos problem, and their participation is of considerable importance to the effectiveness of the Facility. Discussions will continue with other companies who have yet to make a decision, but indications are that the present Insurer commitments received are now adequate for the Facility to move forward. Obviously, for total effectiveness it would require support from the entire Insurance Industry, but we have now achieved enough support to enable U8 to proceed, whilst efforts continue to attract others to join.

You will appreciate that all Insurer commitments are subject to approval being obtained from their Reinsurers. To date certain professional Reinsurers in the U.S. Market have not been particularly positive in their reaction to the Facility, but plans are now in hand for a meeting of Senior Executives to take place within the next month to develop a more positive approach. My personal view is that it is unlikely that any direct writer will obtain the total support of all his Reinsurers, particularly in view of the extended periods affected by the asbestos problem. However, it will be up to each participant to determine whether they have sufficient indications of support to enable them to make the necessary binding commitment.

As an indication of where matters now stand, I am enclosing a copy of a draft press release that will be made to all trade journals and newspapers, including "Lloyd's List". As you will observe from the future activities outlined in the press statement, there remains much to be done to achieve a final closing date of 29th May. Several sub-committees are in existence, which are addressing such varied issues as staffing and terms of employment, transitional arrangements for claim files from each Insurer participant, funding and financial integrity of the Facility, office site selection, incorporation and computer design.

The two London representatives will continue to be actively involved in future meetings, and I have agreed to participate with Pete Thomas, Chief Executive of the Hartford; John Baldwin, Chief Executive of Pittsburgh Corning; and Harry Wellington, Dean of the Yale Law School in making a presentation before Senator Nicholls at the hearing set up by the Senate Labour Sub-Committee to consider the Facility agreement.

The proposed meeting with producers in April is of major importance, for it has as its objective agreement between Producers and Insurers of any specific coverage problems that have not been addressed within the terms of the Agreement, in order that matters remaining for the attention of the Alternative Dispute Resolution Procedures can be kept to the minimum. It is important that you appreciate that at this negotiating session London representatives will be required to make certain decisions on your behalf on the manner coverages will apply within the Facility. Whilst it is not possible to foresee all the issues that could be raised, I trust that you will accept that our representatives are authorised to participate in the manner indicated and can assure you that wherever possible, there will be no departure from the basic principles on which the Facility Agreement was based.

Now that we have the Facility momentum underway, I would like to address the procedure I would advocate for the London Market sign-up. Directly the final minor amendments to the Facility Agreement have been agreed, the document will be reprinted. Once the final agreement is received in London I propose to distribute one copy to each Lloyd's syndicate, and two copies to each London company. As detailed in my letter dated 30th August, 1984, Lloyd's participants will be requested to return to me an authority to sign the final document on their behalf. If for any reason a Lloyd's participant wishes to sign a separate Agreement, the necessary arrangements can be made, provided I am given prior notice to this effect. So far as London companies are concerned, I will require one signed Agreement from each company, which on the present timetable must be returned to me no later than Wednesday, 15 May.

The operation of the Facility will raise two issues for the Market. Firstly, in addressing future year end reserve recommendations, it will be necessary for our U.S. Counsels only to consider an exposure concept in line with the Facility Rules. The liability share allocated to each Producer member will simplify calculations of reserves, which will in any event be affected by the reductions in defence costs that will arise.

Obviously, it will be necessary to continue to operate the London Databank for some time to come, but eventually it should be possible to scale down that operation, once we are satisfied that the Facility Databank will cater for our needs in London.

The second issue that needs early attention is a new authority for the Asbestos Working Party, which will enable prompt commitments to be made on behalf of the Market to the many administrative issues that have to be addressed in the Facility formation, and in the processing of claims. I expect to be writing to you shortly on this subject.

WASHINGTON, D.C., 27 February 1985 - The Wellington Resolution Group announced today that the proposed Asbestos Claims Facility, a private sector solution to the massive number of asbestos-related injury suits clogging the nation's court system, has been given a "green light" and is expected to be established in May of this year.

The Facility is the result of over two years of highly complex and intense negotiations between producers and insurers involved in asbestos-related lawsuits and insurance coverage disputes.

A unanimous decision was made by the chief executive officers of the Wellington Resolution Group to proceed with a concrete schedule designed to achieve finalisation of the Facility.

"We are going forward with the Facility and we will proceed swiftly," said John Baldwin, president of Pittsburgh Corning and chairman of the Wellington Producers Group. "There is no question that this alternative to our court system will satisfy the interests of the parties involved, especially the injured workers," he added.

The Facility is designed to provide a faster, less costly, and equitable alternative to asbestos claims litigation. It will be available to those claimants involved in the more than 23,000 cases currently pending in state and federal courts, as well as the new suits that are being filed at the rate of about 500 per month.

John F. Shea, Jr., vice president and claim counsel of Aetna Life & Casualty and chairman of the Wellington Insurers Group, stated that "although we will actively continue to seek additional subscribers, the recent conditional sign-ups of Fireman's Fund, C.N.A. and Home Insurance companies has greatly enhanced our effort to move the proposal forward."

"We applaud the decisions of the CEOs of these companies to join us and hope that other insurers will soon follow," said Shea. The Facility currently boasts 33 producers and 22 insurance companies that have conditionally signed the Agreement.

The Rand Corporation has estimated that producers and their insurers have spent approximately $1 billion in compensation and legal expenses in the last ten years. Injured workers, however, have received only 37 cents of every dollar.

"Providing fair and equitable compensation to injured workers does not require that hundreds of millions of dollars be wasted in legal expenses," said Dean Harry Wellington, Dean of Yale Law School and Chairman of the negotiations.

The Facility has received the support of many Members of Congress and Administration officials in recent months. Secretary of Commerce Malcolm Baldridge said the efforts of the Wellington Resolution Group "are clear testimony to the ability of the private sector to resolve major problems that widely affect our society. It is significant that you have done so without requiring the intervention of Government."

March 12	Mandatory meeting of subscribing producers to assure completion of insurance coverage information essential for final closing of Agreement.
March 19	Senate Labor Subcommittee holds oversight hearings on Facility; Wellington subscribers testify.
March 29	Insurance coverage information provided by subscribing producers to subscribing insurers.
April 24 - 26	All subscribing insurers and producers meet to reconcile insurance coverage information agreeing on items for alternative dispute resolution.
May 10	Reconciled insurance schedules provided by subscribing producers to subscribing insurers.
May 22	Pre-closing meeting of all conditional subscribers.
May 29	Final closing, final signing, Washington, D.C.

During this time period the Facility will be incorporated and the Wellington Resolution Group will also complete its search for a chief executive officer as well as other personnel. The Facility will be headquartered in Boston with a claims office in San Francisco.

The Wellington Resolution Group is comprised of six major producer companies and six major insurance companies that have negotiated the Agreement to establish the Asbestos Claims Facility. (Kathryn Broderick refers to only 34 Producers and 16 insurers that formerly signed the Asbestos Claims Facility Agreement on 19 June 1985)

Victor B Levit, a partner in the San Francisco law firm, Barger & Wolen, and the legal editor of Underwriters' Reports, delivers a paper entitled "Toxic Perils and Products Liability: Current Insurance and Legal Developments" to the Under 30's Lloyd's Non-Marine Claims Committee.

The US Attorneys reports addressed to Underwriters at Interest advise that "there was some recognition of the potential for property damage liability in cognisance of the increasing number of school District claims filed although the issues of the liability and date of loss remain unresolved".

Letter from Wilson, Elser, Endelman & Dicker to

directors chosen from among the subscribing insurers and asbestos producers. The Facility would operate from two offices, one on the east coast and another on the west coast. Additional regional offices could be opened when and if the need arises.

The Asbestos Claims Council invited interested insurers and asbestos producers to conditionally subscribe to the Facility by 15 July 1984. Final subscription was originally scheduled for 13 September 1984, but was extended indefinitely to allow insurers additional time to consult with their reinsurers.

As proposed, the Facility has two major objectives. First, it will operate as a claims processing center to administer, evaluate, pay, settle and/or defend all asbestos-related bodily injury and disease claims brought against subscribing asbestos producers and their insurers. For the present, property damage claims would not be processed under the Facility.

Each asbestos claimant would be required to support his claim by submitting valid evidence, such as job, medical and compensation histories. Claimants would also be required to demonstrate that they suffer from a recognised asbestos-related condition and that they were exposed to a subscribing producer's asbestos products. The Facility would be empowered to settle on behalf of all subscribing asbestos producers. Punitive damages claims would, however, be disallowed. The Facility would also be empowered to toll the statute of limitations for claimants whose claims have not yet matured, thereby allowing such claimants to resubmit their claims when additional medical evidence becomes available.

One last point should be emphasise. Participation in the Asbestos Claims Facility is purely voluntary. Present and future asbestos claimants may choose to forego the Facility's alternative dispute mechanism, and sue the asbestos producers in court, thereby preserving their right to a jury trial.

The Facility's second major objective is to resolve coverage disputes between asbestos producers and their insurers by providing asbestos producers and their insurers with a cheaper, faster and more efficient way of disposing of those claims. Under the proposed Facility, asbestos producers would be afforded "comprehensive coverage". Each producer would be permitted to select a "coverage block" consisting of some or all of its insurance policies issued before 1 January 1973. 1 January 1973 is the pivotal date, since after that date, insurance policies written for asbestos producers either contained high per-claim deductibles and self-insured retentions or excluded coverage for asbestos-related disease liability altogether.

As claims come into the Facility, each producer would be assigned a predetermined percentage of liability for each claim and its liability would be allocated among all the insurers in its "coverage block". An asbestos producer's percentage of liability would be determined by a complicated formula which takes into consideration the number of claims that have been filed against the producer as well as any amounts that the producer may have paid out on those claims.

Under this coverage approach, an asbestos producer does not have to pay any of its own money until all of the insurance in its coverage block is exhausted. Thus, even if the primary and excess policies in a particular year are exhausted, the producer would not have to participate in affording coverage; rather, coverage for the exhausted policy year would be divided among the remaining insurers in the coverage block.

An asbestos producer may still include post-1973 policies in its coverage block, assuming, of course, that such policies do not exclude liability for asbestos-related diseases, but in that case, the asbestos producer would be required to pay its proportionate share of any per-claim deductible or self-insured retention. For example, if a subscribing asbestos producer is found liable for 1/25 of a claims payment, the subscribing asbestos producer would pay 1/25 of the deductible obligation toward it.

Unlike the "triple trigger" theory of coverage first enunciated in the Keene case, which would allow an insured to select a particular policy that would apply, and then force the selected insurer to seek contribution from the other insurers, the Facility's comprehensive coverage approach eliminates the need for contribution actions because all years of coverage in the coverage block are triggered, and thus each insurer is required to pay its proportionate share.

On the question of the duty to defend under pre-1966 policies, the proposed Facility would provide that the duty to defend would cease on exhaustion of the policy limits. However, if a subscribing producer exhausted all of its other pre-1966 coverage, including its excess coverage, then defence coverage would be revived. The revived coverage would come from a defence fund established by all the subscribing insurers and would guarantee lifetime payments of defence coverage under pre-1966 policy forms.

Not all potential subscribing producers are pleased with the proposed defence coverage provisions. Some producers argue that at least two decisions, AC & S -v- Aetna Casualty & Surety Company, and Raymark -v- Zurich International, hold that insurers under pre-1966 policies have an unlimited duty to defend even after their policy limits are exhausted. In addition, many asbestos producers argue that the Facility's proposed defence coverage plan could mean less excess coverage for some asbestos producers, since excess policies, unlike primary policies, frequently include defence costs within the policy limits and therefore, if excess insurers are tapped for defence costs (instead of primary insurers providing unlimited defence), excess coverage that would normally be used to pay claims would be spent on defence.

The proposed Facility also attempts to resolve the question of putting "caps" on policies and deductibles that have no aggregate limits. This is frequently seen in early Lloyd's policies, many of which were written without aggregate limits. Under the agreement, the coverage cap would be calculated by multiplying the per-occurrence limits by numbers ranging from one to ten. High per-occurrence limits would be multiplied by a lower number, and lower per-occurrence limits would be multiplied by a higher number. Thus, policies with high per-occurrence limits would have a low aggregate limit and policies with low per-occurrence limits have a high aggregate limit. A similar formula would be used to calculate caps on policyholder's deductible obligations.

Most members of the Asbestos Claims Council agree that without widespread industry participation, the Facility cannot succeed. To attract additional subscribers, the Asbestos Claims Council has taken two steps. First, as noted above, it has indefinitely extended the final subscription deadline to allow insurers additional time to consult with their reinsurers. Second, it has extended the cut-off date for individual "coverage buyout" agreements to 24 October 1984. Before this change, any agreement executed between producers and insurers after 1 January 1984 that involved insurers "buying back" the policies they had issued to a producer to end the insurers' liabilities would have been set aside if the producer or insurer joined the facility. As a result of this, many producers and insurers balked at giving up all coverage agreements made after 1 January 1984 in order to join the claims facility.

First, as noted above, in early June Manville announced that it had settled with three of its large insurers -- the Home Insurance Company, The Travelers Insurance Company, and a group of Lloyd's syndicates - for $315 million dollars. Manville originally sued its 27 insurers in 1980 in a dispute over how much insurance the carriers should provide the company for its asbestos claims. A wrinkle emerged in the settlement in early August, however, when it was learned that as part of the settlement package, Manville had agreed to indemnify the three insurers if they were named in any future Manville-related actions.

The second development, also noted above, was Manville's recent decision to subscribe to the Asbestos Claims Facility. Manville's support for the facility has boosted the hopes of the facility's proponents and brought new pressure to bear on more insurers and producers to join.

As we noted in our earlier report, the United States Supreme Court struck down a sizeable portion of the 1978 Bankruptcy Reform Act in the 1982 case of Northern Pipeline Construction Co. -v- Marathon Pipeline. In July, Congress passed a bill that overhauled the U.S. Bankruptcy Court System in accordance with the Supreme Court's Northern Pipeline guidelines. Under the bill, the Bankruptcy Courts were supposed to continue handling the asbestos-related bodily injury claims against Manville that they were currently handling, and all future asbestos-related bodily injury claims against Manville were supposed to be filed in Federal District Courts. In other words, the revised Bankruptcy bill was supposed to apply only to future and not current cases. This is not, however, what happened.

Instead, legislative draftsmen incorrectly applied the new Bankruptcy bill to current cases, which means that all of the 16,500 asbestos-related lawsuits against Manville may have to be transferred to United States District Courts for handling.

A California jury recently awarded a 63 year old welder with lung cancer who had smoked 1 1/2 packs of cigarettes a day for 50 years $200,000 with a 40% reduction for comparative fault for smoking, for a net award of $120,000.

However the jury also found that Carvalho should have known of the cause of his illness on 5 July 1978. This meant that his suit, filed on 28 July 1980, was brought 23 days to late to comply with the State's two year statute of limitations and was dismissed accordingly.

A Detroit Michigan jury has awarded $400,000 in damages to a former insulator who claimed to be suffering from asbestosis. The claimant, who worked as an insulator in the Michigan area for 26 years, also suffered from severe rheumatoid arthritis, and severe heart disease.

The jury had originally awarded the plaintiff $800,000, but that award was reduced by 50% under Michigan's comparative negligence law because the plaintiff had not worn a respirator and had continued to smoke for many years even after he was warned to stop.

The first ten cases processed under the Ohio Court's "Asbestos Case Management Plan" were recently settled for $1.1 million dollars. In December 1983, the Ohio Courts, both state and federal, implemented the Asbestos Case Management Plan to streamline asbestos litigation and facilitate the preparation of asbestos cases for trial. In processing asbestos cases, the plan makes use of such devices as case consolidation, expedited discovery and summary jury trials.

These first ten cases are among the more than 100 asbestos cases filed in Ohio State and Federal Courts between 1979 and 1981. Each of the settling plaintiffs is expected to receive approximately $100,000.

In what is believed to be one of the largest damage awards ever made to a non-cancer claimant, a Philadelphia Court of Common Pleas jury has awarded $875,000 to an asbestosis sufferer and his wife. The defendants in the case included GAF, Pittsburgh Corning and Keene Corp. The trial court did not permit the plaintiff to offer any evidence of lost present and future earnings, lost past overtime or medical bills for future suffering of cancer and mesothelioma.

A jury in King County, Washington has returned the first defence verdict in an asbestos-related disease case in the State of Washington. The case, Kinsman -v- Fibreboard, involved an action brought by a widow of a man who died at the age of 54 allegedly from mesothelioma caused by 37 years exposure to asbestos. The decedent, a vice president with the Brown Company, who was earning $51,000 at the time of his death, was allegedly first exposed to asbestos while employed as an insulator for the Brown Company.

In a recent study on the adequacy of workers compensation payments to the survivors of men who died from workplace exposure to asbestos, Cornell University researchers have concluded that "the compensation is neither adequate nor equitably distributed."

In another study, researchers for the Rand Corporation Institute for Civil Justice concluded that neither the legal jurisdiction (federal or state) nor the region of the country, made any significant difference in the outcome of an asbestos-related disease case. While noting that the more severely injured plaintiffs generally received higher awards, the Rand Corporation's researchers found that other factors besides the plaintiff's injury, influenced the plaintiff's award. Those factors include:

A recent survey conducted by the American Society Home Inspectors of 670 homes in the eastern United States indicated that 181 homes, or 27%, contain asbestos products. The results of the survey were published in a report which was presented to the Consumer Products Safety Commission in mid-October.

The report concludes, "Asbestos was commonly found in homes more that 20-40 years old and is particularly common in components of home heating systems. The asbestos products in inspected homes were often damaged or worn; these are the conditions under which the Consumer Product Safety Commission staff is most concerned about the possibility of asbestos exposure to home residents. "

Recently, in In re: Asbestos Litigation, the Second United States Circuit Court of Appeals sitting in New York dismissed four consolidated asbestos cases brought by workers

In April 1984, a bill, known as the Asbestos School Hazard Abatement Act, was introduced in the Senate. Under this bill $500,000,000 would be spent over the next six years to remove asbestos from schools across the country. The bill would require states to submit priority lists, indicating which schools are in the most need of federal assistance.

In the case of Austin -v- Raybestos Manhattan, the Maine Supreme Court ruled that comparative negligence can only be used as a defence in a strict liability action in Maine if a plaintiff's conduct rises to the level of "assumption of the risk."

In the case, Joyce -v- AC & S, the claimant had contended that his wife contracted mesothelioma as a result of her continuous and repeated exposure to asbestos both in her home and on the job with DuPont. In reaching its decision, the Court said, "Although DuPont is immunised from suit in its capacity as an employer, with respect to the claim to the decedent's exposure as a housewife, DuPont occupied a position no different from any other joint tortfeasor and should be treated accordingly."

Manville has filed another third-party action in the U.S. Court of Claims against the United States Government, this time seeking $36,000,000 in damages and legal costs that the Company claims it paid in connection with claims brought by nearly 1,200 shipyard workers. Manville charges that the U.S. Government failed to fulfil its contractual obligation regarding asbestos containing products in shipyards, thereby resulting in unobserved safety and health regulations. Manville claims that the government was aware that it was delinquent in meeting Navy safety and health standards for asbestos exposure and it has offered documents into evidence that will allegedly prove it.

This is Manville's third third-party action against the Government. The first action, filed in July 1983, sought contribution for damages Manville paid to asbestos victims who suffered shipyard exposure during World War II. In the second action, filed in November 1983, Manville sought contribution for damages it paid to government shipyard workers exposed to asbestos after 1964.

This action, part of the ongoing Keene litigation, involved pre-1966 coverage that INA sold to Keene between 31 December 1956 and 1 June 1968. INA told Keene that the indemnity limits of the pre-1966 policies were exhausted and that the defence obligation would be transferred to Keene's excess liability insurance carriers.

Relying on the cases of A C & S -v- Aetna Casualty & Surety and Commercial Union -v- Pittsburgh Corning corporation, Keene argued that the standard pre-1966 policy language created an "open ended " duty for INA to continue paying defence costs in all present and future asbestos-related suits brought against Keene.

In reaching its decision, the Court specifically rejected the holdings in A C & S and Commercial Union and held that the policy language is susceptible to only one reasonable interpretation, namely, that the policies limit the duty to defend as to both the nature and the amount of insurance provided. As the Court said, "without offering any objective evidence of a contrary intent, Keene suggests that it reasonably could have expected the defence duty to continue long past INA's payment of the policy limits. This construction would remove any connection between the duty to defend and the payment of insurance premiums."

This decision marks the first time that any court has limited a primary insurer's defence obligation under pre-1966 policies. Many insurance company lawyers are already saying that this decision will be useful in appealing previous opinions in such cases as A C & S and Commercial Union where courts have held that the primary carriers have an unlimited defence obligation under pre-1966 policys.

On November 13, 1984 the United States Court of Appeals for the Second Circuit affirmed Federal District Court Judge Abraham Sofaer's decision in the case of American Home Products -v- Liberty Mutual that "injury in fact" is the trigger for coverage in progressive or delayed manifestation disease cases.

The American Home Products case was concerned with determining the nature and extent of Liberty Mutual's liability for defence and indemnification in fifty-four suits filed against American Home Products by plaintiffs alleging injuries from a variety of pharmaceutical products, including DES. In each of these suits, the alleged injuries did not manifest themselves until after the termination of Liberty Mutual's insurance coverage on 1 November 1976.

With the Second Circuit Court of Appeals' decision in American Home Products, six Federal Appeals Courts have attempted to resolve the question of when insurance coverage attaches in progressive or delayed manifestation disease cases. The following is a brief survey of the Federal Appellate Court decisions concerning the attachment date for insurance coverage in such cases:

In other developments, it was recently announced that Keene Corporation had settled its suits against INA, Aetna, the Hartford and Liberty Mutual. The settlement came after Keene Corporation instituted a declaratory judgment action against those carriers in the United States District Court for the District of Columbia to determine the nature and extent of the insurance coverage they provided it. As you will recall, it was in the Keene case that the "triple trigger or continuous trigger" theory of coverage was first enunciated. Trial of the case was scheduled to begin on 26 November. This would have been the first trial to determine whether an asbestos producer's insurers are liable for bad-faith conduct in their handling of asbestos claims.

In one of the broadest decisions on the allocation of defence costs in asbestos coverage disputes, an Illinois County Circuit Court has ruled that primary insurers on pre-1967 policies have an unlimited duty to defend asbestos producers, even after their policy limits are exhausted. In the case of Raymark -v- Zurich Insurance Co., the Court reasoned that since none of Raymark's pre-1967 primary carriers had any language in their policies limiting their defence obligations and since Illinois case law clearly indicates that the duty to defend is independent of and broader than the duty to indemnify, the duty to defend is unlimited.

With respect to post-1967 policies, the Illinois Circuit Court ruled that while the primary insurers of asbestos defendants generally do not have an unlimited duty to defend the assured after their policy limits are exhausted, the primary insurers must continue to provide a defence for cases they are currently defending, even after their policy limits are exhausted. Here the Court reasoned, based on the well-settled principles of insurance law and on the ideals of American Jurisprudence, that an insurer cannot abandon a case in progress once it has assumed a defence.

Barring a successful appeal, this decision means that Raymark's primary insurers will pay virtually all the defence costs and that its excess liability insurance (approximately $370 million) can be used solely to indemnify asbestos injury damages assessed against the assured.

In the landmark decision of Copeland -v- Celotex, a Florida appeals court became the first court in the United States to adopt a market share theory of liability in an asbestos-related disease case. In Copeland, the Court ruled that defendants in asbestos-related disease suit are required to apportion their liability and damages according to their total market share, even when plaintiffs cannot identify which company's product caused their injuries. The Copeland decision is a technical variation of the landmark California decision in Sindell -v- Abbott Laboratories, in which the California Supreme Court first used the market share theory of liability in a suit involving the anti-miscarriage drug DES.

The plaintiffs in Copeland claimed that they were unable to identify the asbestos product's brand names after they were removed from their original containers. They sued virtually all the manufacturers and distributors of the asbestos products to which they were exposed. Celotex argued that the plaintiffs' complaint should be dismissed, since they failed to show a causal connection between the injuries they sustained and their exposure to Celotex's asbestos-containing products.

The Florida appeals court's adoption of the market share theory of liability in Copeland was somewhat unexpected, since neither side urged the appeals court to apply the market share theory; indeed, plaintiffs and defendants had agreed at the outset that Sindell should not apply.

In the case of Jackson -v- Johns-Manville, the Fifth Circuit ruled that punitive damages should not be imposed on asbestos manufacturers because the companies are struggling to pay compensatory damages. This case arose out of an action brought by a former Mississippi sheet metal worker who received compensatory damages of $390,000 against Manville and Raybestos and punitive damages of $500,000 against Manville and $125,000 against Raybestos. In vacating the damage award and in remanding the case for retrial on the damages question, the Fifth Circuit said "[o]ur holding today is limited to the extraordinary circumstances of this litigation, where the allowance of punitive damages carries the manifest portent of undoing the strict liability remedy for present and prospective claimants and where the purposes of punitive damages are otherwise served."

In another asbestos case, Hansen -v- Johns-Manville, the Fifth Circuit ruled that punitive damages awards were appropriate. In Hansen, a Texas Federal Jury awarded punitive damages for the death of a 65 year old pipefitter who died in 1978 of asbestosis, after working 35 years in the Todd Shipyard in Texas. In appealing the award, Manville urged the Fifth Circuit to follow its Jackson decision and set aside the punitive damages award. The Court, however, disagreed, noting that its Jackson holding was based in Mississippi law and that it could " [f] ind no basis on which to hold that Texas courts would disallow punitive damages award in a situation such as this."

Notwithstanding the Court's attempt to explain the different results reached in Jackson and Hansen on choice of law grounds, plaintiff's attorneys believe that the Fifth Circuit may be preparing to overturn its earlier decision in Jackson. In its most recent punitive damages case, Foster -v- Pittsburgh Corning, the Court affirmed a trial court decision awarding an lnsulator $300,000 in punitive damages against Pittsburgh Corning. Moreover, the Fifth Circuit, sitting en banc, reheard oral arguments in Jackson in mid-September, although no early ruling is expected.

In the case of Kline -v- Johns Manville, et al., the Ninth Circuit recently held that Pittsburgh Corning Corp. was not a successor in interest to Unarco Industries. This case involved actions brought by nine plaintiffs who allegedly contracted asbestos-related diseases from their continuous and repeated inhalation of asbestos fibres from pipe insulation materials manufactured by Unarco. Unarco manufactured the asbestos-containing product line known as Unibestos from 1936 to 1962, when it sold the Unibestos line to Pittsburgh Corning.

The Court held that California generally did not impose liability "[o]n a successor corporation that purchases the assets of a predecessor in an arm's length transaction." The Court did note, however, that in the case of Ray -v- Aldad Corporation, an exception was created. In Ray, the California Supreme Court held that a successor corporation could be held liable for the torts of its predecessor if the predecessor liquidates itself after the sale of its assets. The Ray holding is based on the following factors:

The Ninth Circuit concluded that Ray was not controlling in the Kline case since Unarco did not liquidate; rather Unarco continued to do business with other product lines even after it sold its Unibestos line to Pittsburgh Corning and thus, the plaintiff's remedy against Unarco was still preserved.

Gypsum is asking the Court to apply the "triple trigger" theory of coverage to its action, a theory which was first enunciated in the landmark decision of Keene -v- Insurance Corporation of North America.

Most members of the Asbestos Claims Council agree that without widespread industry participation, the Facility cannot succeed. To attract additional subscribers, the Asbestos Claims Council has taken two steps. First, as noted above, it has indefinitely extended the final subscription deadline to allow insurers additional time to consult with their reinsurers. Second, it has extended the cut-off date for individual Coverage buyouts agreements to 24 October 1984. Before this change, any agreement executed between producers and insurers after 1 January 1984 that involved insurers buying back the policies they had issued to a producer to end the insurers' liabilities would have been set aside if the producer or insurer joined the facility. As a result of this, many producers and insurers balked at giving up all coverage agreements made after 1 January 1984 in order to join the claims facility.

The extension of the cut-off date for buy-out agreements is believed to be what motivated Manville to conditionally subscribe to the claims facility in mid-October. Manville reached a $315 million settlement with its three primary carriers, Travelers, the Home and Underwriters at Lloyds in July 1984. Were it not for the extension of the cut-off deadline, Manville would have had to set this agreement aside if it joined the claims facility.

The Agency Agreements Byelaw (No. 1 of 1985, 11 March 1985). Standard Agency Agreements etc.

(a) the question of Johns-Manville asbestosis settlements was raised ...

2. the Rocky Mountain claim (Shell chemical waste 194344) is still around this year. As this claim involves the US Government there are various bases on which settlement can be made. Paul McNamara is to circulate a confidential memo to partners only regarding this problem.... It was also felt important that clients are sent copies of all recent Lloyd's publications prepared by E & W..

Alan Deeves felt (and Stephen Hill agreed) that syndicates were becoming "little companies." In this respect it was considered that underwriters need educating as to the procedures they should be adopting, and it is our job to educate them.

The Times: Lloyd's underwriter ‘made scapegoat for dubious practices'

Mr. Peter Coucher, a former Lloyd's underwriter who made a series of false insurance claims to pay for the running of his yacht, L'Obsession, claimed in an interview with The Times yesterday that he had been made a scapegoat for dubious business practice

Speaking on the telephone from St. Thomas, in the United States Virgin Islands, where he works, Mr. Coucher said: "I was singled out as the culprit for practices which everyone knew about, and I was paid off to resign Lloyd's and leave quietly".

He said that he had been available in London until July last year to answer any investigation into the £11,000 in false claims, but had never been approached by Lloyd's. "There is no question whatever of my fleeing the country.

On Tuesday the Lloyd's council published its ruling into the affairs of Syndicate 689, the group formed by Mr. Coucher to underwrite yacht insurance. Mr. Coucher was employed by Bellew, Parry and Raven as agent to run a similar syndicate owned by them, Syndicate 691.

At the end of 1982 it was revealed that L'Obsession owned by Syndicate 689 and berthed at Lymington, Hampshire, was having its expenses paid by false insurance claims.

According to Mr. Coucher., who is now working as a consultant to Insurance Unlimited (Caribbean), on St Thomas, the claims were used to pay £600 a year mooring fees for L'Obsession, which was used for business entertaining. From 1977 to 1982 a total of, £6,500 in false claims was paid out to run the yacht.

Mr. Coucher said yesterday: "The purpose of those claims was known openly. I do not regard them as in any way fraudulent."

"I was then offered by Bellew, Parry and Raven £25,000 in cash, free of tax, and £89,000 for my half share in my company, Coucher Underwriting Agency, to leave quietly. I decided that I didn't want to face the hassle, and agreed to resign from Lloyd's after 35 years as a member because I was fed up with the whole business, and felt I was being victimised because the club did not like me."

Mr. Donald Mott, a director of Bellew and Raven underwriting agencies, agreed yesterday that Mr. Coucher had been paid to buy out his syndicate. "There is no question, however that we were buying him off. That is totally untrue."

Mr. Mott added: "At that time the bye-laws contained in the Lloyd's Act, which introduced the disciplinary procedures for such situations, was not in force. They came in at the beginning of 1983."

According to Lloyd's it was felt by all the insurers involved that, by paying £7.000 to Bellew and Raven in early 1983 to clear the false claims, Mr. Coucher had indeed acquitted his responsibility.

Robin A G Jackson had agreed to participate with Pete Thomas, Chief Executive of the Hartford; John Baldwin, Chief Executive of Pittsburgh Corning; and Harry Wellington, Dean of the Yale Law School in making a presentation before Senator Nicholls at the hearing set up by the Senate Labour and Human Relations Sub-Committee to consider the Facility agreement.

(Mr. Robin Jackson in testimony stated that "the number of present and expected asbestos-related claims is enormous, and the problems they are creating for the producers and insurers are unprecedented, both in terms of the total dollars involved and of the human resources needed to handle these claims. ... Against this background of judicial uncertainty, already catastrophic losses, and the reality of massive property damage claims yet to come, the task of fixing meaningful reserves and managing cash-flow to pay claims will continue to demand virtual clairvoyance and a near reckless courage from the executives involved at primary level, as well from their re-insurer counterparts." (emphasis added). Mr. Jackson then added "You might well ask if we are getting it right. I will show you how we propose to do just that" and referred to the proposed Asbestos Claims Facility. While appropriate allowance must be made for the occasion on which these remarks were made their significance is obvious).

Standish stated that it was his belief that the existence of a time and distance policy should be disclosed as this was, in effect, a discounting of reserves. He then explained how a time and distance policy worked. John briefly touched on 3 other points:

(b) the likelihood that any factor preventing a true and fair report being given may also indicate non-compliance with a specific requirement of the bye-law and hence necessitate qualification in any event.

Market Claims Services Ltd incorporated, as a company limited by guarantee and not having a share capital. The principal activity being to process, litigate or settle insurance claims, particularly those relating to asbestosis. The original 13 Subscribers and Directors being main player Lloyd's Agency Underwriters and Claims Directors:-

In April, Mr Miller addressed the American-Swiss Chamber of Commerce in Geneva.

State of New York -v- Shore Realty Corp., 759 F.2d 1032, 1044, 2d Circuit, 4 April 1985. Court of Appeals for the Second Circuit found retroactive strict liability "without regard to causation" under CERCLA, and under the law of the State of New York, for the cleanup costs of an environmental claim.

Peter Standish opened the meeting by stating that the purpose was to discuss where we were on true and fair reporting in terms of bye-law number 7 in general and premium accruals in particular..

2. Time and distance policies: It was generally considered that such policies amount to a discounting of the reinsurance to close, and such must be disclosed....

(a) where there is a specific transgression of the bye-law, we must qualify the syndicate accounts;

(b) a non true and fair report amounts to a qualification;

(d) a standard qualified report... is to be issued covering various circumstances. Michael Bolger spoke at some length on the Neville Russell paper on syndicate audit reports. John Philpott spoke about the problems of run-off accounts.... There are attached examples of audit report qualifications.

HMSO publication "Asbestos: Effects on Health of Exposure to Asbestos" issued by the Health and Safety Executive.

Recovery of monies Paid Out of Lloyd's Central Fund or the Funds and Property of the Society Byelaw (No. 2 of 1985, 15 April 1985).

Mr Randall's memorandum to Mr Merrett refers to "the shattering news of the last ten days".

... Solvency test problems may arise where we are unable to express an unqualified true and fair opinion on the syndicate accounts...

In cases of non- fundamental uncertainty arising from inadequate premium records, the premium credit which is omitted is likely to outweigh the additional reserve which would be created thus giving rise to a worse view being taken for solvency purposes which is probably acceptable in the context of the test, although questions arise as to whether names should be advised by their members' agents that they are being penalised.

Statement by Mr. Peter Miller, Chairman of Lloyd's

During 1984 the Council continued at its monthly meetings, to promulgate rules for the effective supervision and administration of the Lloyd's market within a self-regulatory environment. Byelaws were enacted covering the re-registration of underwriting agencies following divestment, the accounts and audit of syndicates, rules for members, and the monitoring of premium income. In legislating for these and other topics, the Council continued to ensure that opportunities were offered for full consultation with the market, the membership and other interested parties.

Against the background of the significant progress made over the past two years in the discharge of its regulatory function, the Council decided in November 1984 that greater emphasis should henceforth he laid on formulating policies that are directed towards enhancing the level and quality of support to the Lloyd's market to enhance its commercial success.

Some of the policy decisions have already been implemented and are referred to elsewhere in this report. Within the Corporation, a small unit has been established to act as a focal point for co-ordination of changes in market practices and procedures. This and other developments in the market services area allied to the introduction of enhanced systems and communications facilities, are directed to securing the provision of highly efficient yet cost effective services to the market in general and underwriters in particular.

The Council and Corporation will implement this programme on a carefully phased basis since we are concerned to maintain a flexible approach and avoid unrealistic deadlines. We are equally concerned to preserve the independence and individuality of our underwriters, who must be enabled to take advantage of the welcome current upturn in the market with complete faith in the regulatory and administrative services provided by the Corporation. We are all determined to earn and thereafter to continue to justify that faith.

Postal ballots were held for eight seats on the Council of Lloyd's for 1985 in respect of both working and external members. This election was the first occasion on which external members of the Council were elected under the full provisions of Lloyd's Act 1982. Previous elections for external membership of the Council were conducted under the transitional arrangements of the Act. Under these arrangements, the four retiring external members of the Council were able to stand for immediate re-election on this occasion only.

There were eight candidates for the four working members' seats vacated by the retirement (by rotation) from the Council of Mr B J Brennan, Mr G W Hutton, Mr S R Merrett and Mr I R Posgate. Those elected were Mr R Ballantyne, Mr P T Daniels, Mr. H R Dobinson and Mr. A Parry.

Of the seventeen candidates who contested the election of four external members of the Council Mr J M G Andrews was elected and Mr C C Baillieu, Mr C V G Davidge and Mr R E M Elborne were re-elected to serve a further term.

Mr E I Walker-Arnott, one of the four nominated members of the Council who retired, by rotation, was re-appointed, with the approval of the Governor of the Bank of England, to serve for a further period.

A new organisation structure for the senior staff of the Corporation has been introduced recognising the three principal functions performed for the Lloyd's community by the Corporation: the regulation of the market; the provision of commercial services to support the operations of the market; and the management of the Society's facilities and staff. This new tighter structure has improved co-ordination between Corporation departments and with the Council and its Committees which lay down policy for Lloyd's.

During the year, Mr P J Rawlins, first secretary to the Rules Committee and personal assistant to the Deputy Chairman and Chief Executive, following the end of his period of secondment to the Corporation took up an appointment as managing director of R W Sturge & Co; Mr K E Randall resigned as Head of Regulatory Services upon his appointment as managing director of a Lloyd's underwriting agency; and Mr C T G Blackmore, Director, Redevelopment Project retired. All played a significant role in the work of the Corporation.

Pending the appointment of a new Head of Regulatory Services, Mr P A R Brown, Head of External Relations was appointed Acting Head of Regulatory Services. Mr P M R Hermon was appointed as Head of Systems and Communications Group and Mr W C Beckett, formerly Solicitor to the Department of Trade and Industry, was appointed to the new position of Solicitor to the Corporation at the beginning of 1985.

Membership of the Society continued to expand vigorously. The number of underwriting members of Lloyd's at the beginning of 1985 was 26,050, representing an increase of more than 11 per cent on the previous year. While the number of UK members increased by almost 10 per cent, the number of American citizens in membership rose by 18. 7 per cent. Overall, the increase in the number of foreign nationals compared with a year earlier amounted to eleven per cent. More than one fifth of the Society is now accounted for by female members.

There is every indication that this year will see further substantial increase in the number of individuals applying for membership of Lloyd's. The Society is indebted to members of the Committee and Council of Lloyd's who serve on the Rota Committees and to the Membership Department for the smooth processing of applications.

Much of the Council's work, with the close involvement of appropriate Committees of the Council and Corporation departments, was concerned with the formulation and promulgation of byelaws relating to establishing improved standards for the preparation of syndicate accounts and for the auditing of those accounts. These standards are contained in the Syndicate Accounting Byelaw (No 7 of 1984) and the Syndicate Audit Arrangements Byelaw (No 10 of 1984).

Important progress was also made in the promulgation of rules concerning .membership. This was reflected in the implementation of the Membership Byelaw (No 9 of 1984) and publication of a manual for members which contained detailed requirements and conditions for membership of the Society. The Long Term Review Working Party, under the chairmanship of Mr. P G Bird, completed its deliberations and, since the end of the year, its report has been published as a consultative document on which submissions and comment have been invited.

In May 1984, the Council promulgated the Underwriting Agents Byelaw (No 4 of 1984) which deals, inter alia, with the subject of divestment. It is a statutory provision of Lloyd's Act 1982, that Lloyd's insurance brokers must divest themselves of their managing agencies by 22 July 1987, five years from the date of enactment.

This process will inevitably have fundamental repercussions for the structure and shape of the Lloyd's market. The divestment programme has already gathered pace and by the end of the first quarter of 1985, almost half of the 114 managing agencies affected had announced plans to comply with the Byelaws.

In January 1985, the Council approved publication of the new Standard Underwriting Agency Agreement following consideration of responses to a consultative document published in July 1984.

Investigations have now been largely completed into those cases of alleged misconduct which came to light towards the end of 1982. In consequence, a number of cases have been heard by Lloyd's Disciplinary Committees. The verdicts and penalties have, in some cases, been considered at special meetings of the Council and the findings of the Disciplinary Committee and the Council's decisions made public.

After prolonged discussions, in which Lloyd's law Reform Committee was actively involved, the Government decided not to proceed with a Michael Cockell, the Chairman participated in the annual meeting of the American Association of Managing General Agents. Finally, after a brief visit to Los Angeles, Mr Miller addressed a plenary session of the National Association of Insurance Commissioners in Kansas.

During 1984 there has been a very substantial deterioration in outstanding claims which relate to many years ago. The deterioration is related to three major factors; significant further increase in the number of claims for asbestosis; a larger than expected settlement of claims for sufferers from the defoliant used in Vietnam, Agent Orange, and a massive claim from Shell Oil in the USA relating to seepage of chemical warfare products in Colorado which they have been ordered to clean up by the US Environmental Protection Agency. These additional claims have added in the year approximately $70 million to the claims that may have to be paid eventually by Syndicate 317. However, insofar as our client never underwrote the business directly he is not well placed to assess whether the current estimate of outstanding tosses is excessively prudent or not. He has made enquiries in respect of one of these contracts which, so far, indicates that the position may be prudent. We are nevertheless left with a major difficulty in determining what the ultimate liability on these contracts is likely to be. Many of the long established syndicates at Lloyd's are having difficulties in assessing the reserves to make in respect of business written many years ago but insofar as the syndicates have expanded greatly in the intervening period the adverse effect of under provision is spread over a greatly increased number of names. However for Syndicate 317 we are effectively [sic] taking in the adverse run-off for more names than are currently on the syndicate and thus there is uniquely not the dilution that helps the others....

The Client's Position:

... Although it is a standard Lloyd's procedure to close an underwriting account by reinsurance into the following year it is possible to leave an account "open" and thus the 1982 Names stay on risk until such time as it is decided to close the account. It is widely known in the Lloyd's market that Mr Outhwaite has written these run-off contracts, not least by the many people he has insured who believe that he will end up paying out more than he expected. Mr Outhwaite is aware of the controversy surrounding these contracts and also the increased attention created by the substantial losses recently declared by our client, Merrett syndicates. Part of which has arisen from a dozen run-off contracts that they have underwritten some jointly with Mr Outhwaite. Whilst we do not doubt his sincerity in the proposed result for the year we appreciate that he would not wish Names to defect from his syndicate, rather the reverse, which could arise if he declared a significant loss. He has already had Merrett syndicates, who as a sub-agent had placed names on the syndicates, defect following an investigation and he would not wish others to follow.... the principal argument put forward by him [Mr Outhwaite] is that the insureds are pessimistic in the notification of the claims outstanding and that it is typical for outstanding claims to reach a peak and then fall out as they are compromised or not pursued. He considers the latter to be particularly relevant in connection with property claims arising on buildings, like schools, built with asbestos linings. However confident he may be it is still necessary for him to consider the adequacy of the IBNR. The client has not produced any documentation or calculations to support the IBNR. Indeed he did not until recently accept the principle of providing the future cost of financing losses provision which he has now effectively made by reducing the IBNR by a corresponding amount. Whilst it is recognised that determining the IBNR is not susceptible to actuarial projection we are in the position of relying on his opinion as to excessive nature of the claims already notified and the £34.1 million of IBNR.

Our position:

Apart from acting as auditors to this syndicate we also act for at least 17 sub-agents who have placed Names on the syndicate ... the new Lloyd's Regulations effectively stipulate that if we issue a qualified report that the 1982 account will have to be left "open". This course would be highly unpopular with the agent and also the sub-agents for the administrative chaos it would be likely to cause. It has to be recognised that if the account is left open there is every probability that it will remain so until at least 2010 which creates the difficulties for Names who die, resign etc. However the 1983 Names are already committed and they must receive an equitable premium for the risks they are assuming, particularly those who joined in 1983. There are a series of fundamental issues to address.

Firstly whether we are satisfied that the client has done enough to demonstrate that the reserve for IBNR has been calculated after due and careful consideration.

Secondly we have to consider disclosure. At the present level of reserve we are assuming an ultimate level of claim payments including IBNR that might be considered by many as being low although the judgement could only be made on the basis of even more limited knowledge than the Underwriter. If however the syndicates were to adopt the level of provision that Merretts were projecting for their run-off contracts then we would need to add approximately £40 million to the IBNR or £25,000 per name.

EOME opened the discussion and enquired whether the numbers had been properly computed by the client particularly in respect of the IBNR. It was admitted that the client had originally been planning to pay out a profit of £7 million to the names and the revised figures were showing a distribution of only £400,000 and the difference represented adjustments made in respect of points which had been raised in the course of our audit which required the specific adjustment. Nevertheless, it was recognised that the element of IBNR had in one sense remained unaltered and had been initially derived backwards, the figure having first determined what profit the Underwriter wished to pay out.

N C L McDonald stated that despite making the adjustments there was still a very large degree of uncertainty because of the sensitivities of the projections to minor changes in the assumptions. He felt that as the initial starting number for the IBNR reserve was unsupportable no matter what changes we had made, the final concluding number still suffered from the inherent defects of the original estimate, as the adjustments we asked to be made represented only specific items and that the original Reinsurance to Close put forward by the client represented an element of the specific and the general and that whilst we had adjusted the specific little change had been made, if any to the general provision despite the client's acceptance of the fact that some interest factor adjustment would have to be made for the payment of claims running ahead of the recovery under the special reinsurance policies.

NCLM stressed that he appreciated that we were in an industry dealing with uncertainty and that we naturally expected, but it was nevertheless still possible, to come to a point whereby the uncertainty was so significant that we would be unable to express a view. He went on to say that insofar as he believed that the Underwriter was not necessarily putting forward a well constructed best estimate of what the outstanding losses are likely to be, that we should in no sense in our audit report, endorse the position taken by the client even in the knowledge that it might well be wrong...

N F Holland expressed the view strongly that what we did not want to do in our audit opinion was to say that the matter was such that we thought the Reinsurance to Close was understated but that we wished in fact to take a neutral position.

KPM supported this view and he appreciated the point that was being made by NFH. If we said it was under-reserved it will be very difficult for us to sign a solvency certificate with an opinion which would have a compounding effect on the overall solvency certificate for the whole of the Lloyd's Market....

KPM expressed the view that the professional reader of the accounts would be very much able to form his own view about the adequacy of the Reinsurance to Close if he was able to see that the ratio of the specific element to the IBNR element. It was also agreed that in view of the uncertainties we had, it would be inevitable that we would have to give a form of opinion that was tantamount to a disclaimer and that as a consequence, the account would be likely to be left open probably for many years to come. Note signed by McNamara on 15 May 1985.

The Chairman of Lloyd's Peter Miller, accompanied by Mr Colin Murray and senior members of the Lloyd's broking community paid an official visit to the Peoples republic of China. In Beijing, the Lloyd's party met the Chairman of The People's Insurance Company of China, Mr Shang Ming and other leading officials of the PICC, before being received by Vice Premier, Tian Jiyun and Madame Chen Muhua, State Councillor and President of the People's Bank of China.

Evening Standard: The Name Game – and why, today, there are some famous faces among the losers

A few weeks ago they were brusquely informed that they had, each and every one, lost a fortune on insurance under-writing deals which had gone horribly wrong.

But for most of the other 400 names it is a deep personal tragedy and one made all the worse for the waiting, for they still do not know just how bad it will be, and just how much they will have to pay up.

"The vast majority of the 400 affected are normal, middle - class moderately wealthy people," says Christopher Crosthwaite, a partner in Ashurst Morris, a leading firm of solicitors.

He is involved because he acts for a steering committee of names formed under the chairmanship of Lord Goodman, which is even now seeing what can be done to limit the damage.

And he is extremely concerned at the toll the potential losses could have on these people.

"Many are professional people – barristers, solicitors and farmers, and the bulk of them are retired." says Crosthwaite. "In a lot of these cases a substantial portion of the security they have pledged is their holiday home or their life savings or both, and they it is who stand to lose all. Quite a number say they face personal bankruptcy."

They stood to lose about £60 million for the insurance policies they had written in the years up to 1982 - a wallet-numbing average of £150,000 each.

But there is worse - possibly much worse - to come. That letter detailed the problems up to the end

of 1982 but they are still working out what has happened since then.

How, bad that will be is still anyone's guess but it could be as much again, or more. So the average

Liability immediately doubles to £300,000.

But it is worse than that. For what the names in these affected syndicates have found is that the horse which keeps winning is one they did not even know was in the race.

They are being asked to pay out claims which could one day reach $5 billion for compensation to workers for diseases like asbestosis which did not exist, or had not been diagnosed, when they agreed years ago to insure the employers against the possibility of their people being inured at work.

To become a name, you have first to be able to show personal wealth of £100,000, excluding your house, but you do not actually have to deposit the money. So it can be left in shares or earning interest in a bank account, while at the same time it is technically working for you at Lloyd's. In other words, it earns for you twice over.

On top of that, writing insurance can be very profitable. If, for example, a syndicate has £1 million of capital, it would be allowed to collect insurance premiums under Lloyd's rules for two, three or perhaps four times that amount, depending on what was being insured.

So it might have £4 million in cash from premiums which it can invest, and the interest on that at today's bank rates of 12-5 per cent would be £500,000 a year.

Meeting held at Lloyd's to inform them about the qualification in the audit report of Outhwaite Syndicate 317/661 in their 31 December 1984 accounts.

Paul McNamara then explained to Cathy Shorthouse( Manager, Lloyd's Auditing Department) enough of the background for her to understand how we had come to the present position of an audit report with a disclaimer of opinion. He emphasised that the report on the Syndicate's accounts and the report on the Syndicate's solvency position for the 1982 year of account were two entirely separate issues. He agreed that for solvency purposes as the provisions to close 1982 were the Syndicate's best estimate and also that Ernst & Whinney were not saying that this estimate was too low we could sign off the solvency return for the Syndicate.

Paul McNamara pointed out that our audit qualification on the accounts was carefully worded to take a middle or neutral view, i.e. the disclaimer of opinion was purely on the grounds of uncertainty, Ernst & Whinney are not saying they consider the reserves to be either understated or overstated, ...

Maurice Hussey stated that he had discussed the Syndicate's audit report qualification with a number of sub-agents for the Syndicate and they did not disagree with this qualification. Robin Gilkes then strongly expressed his opinion that the 1982 accounts should be closed. He stated that to keep it open was not the best solution as it would not be possible to close it for say 10 years.

Cathy Shorthouse then stated that the final decision as to whether a year of account is closed rests entirely with the Managing Agent. She pointed out that discussion on this matter with a Syndicate's auditors would be beneficial but emphasised that the final decision on whether a year of account is closed is the Managing Agent's and not the auditors'....

It was thus agreed that the Syndicate could close its 1982 year of account and that the audit report would be qualified with what amounted to a disclaimer of opinion. It was also agreed that the solvency return for the 1982, 1983 and 1984 accounts at 31 December 1984 would be submitted with a clean audit opinion. Note by N B Tyler.

Cover Note issued by E W Payne Limited (a Sedgwick subsidiary) to Merretts summarising Time and Distance policy purchased from Mendip Insurance & Reinsurance Company Ltd ("Mendip") (a Sedgwick subsidiary), a company incorporated in Bermuda. The contract cost $3,275,000 and would generate potential recoveries of $7,250,000. The contract had the effect of reducing losses attributed to the Names on the 1982 year of account of Syndicate 421 by $3,975,000 (£3,426,724 at 31 December 1984 rates of exchange) which represented approximately 120% of the 1982 stamp.

In a file note dated 15 May 1985, in relation to the audit of the accounts of Syndicates 418/417 and 421 for the year ended 31 December 1984, Ernst & Whinney recorded inter alia:

"It was the initial intention of Merretts that having computed the necessary reinsurance to close for each of the above syndicates they would be closed out on the basis of a full reserve at this time, although it was recognised that there would not necessarily be settlement on many of the claims provided for many years to come.

After further consideration and discussions with the Chairman of Lloyd's and the Deputy Chairman by Stephen Merrett it was decided that they would take out an element of time and distance policy ... in order to mitigate the impact of the losses on the Names participating in the 1982 year of account ...

We stipulated to them that if they chose to purchase such policies we consider it essential that the timing of recoveries under those policies should be such that at no time were the funds carried forward left in the syndicate in respect of the 1982 accounts and prior being inadequate to meet the claims as and when they fell due. If in fact there was a position whereby subsequent underwriting years of account had to fund the difference then it will be necessary at this time to make an interest provision for that funding to be provided by future years of account.

After this discussion Merretts produced various cash flow forecasts in order to determine the pattern of time and distance policies that they would wish to purchase in order to ensure that there would be adequate cash in the syndicate to meet claims as and when they fell due out of funds provided in respect of the 1982 year of account. Full cash flow forecasts were produced for each syndicate by Peter McCann on the basis of spending various sums of money in respect of time and distance policies for each syndicate and with different periods of recovery as needed.

In preparing the cash flow forecasts account was taken of the various elements of the reinsurance to close in determining the claims settlement patterns. Particular attention was paid to the run-off contracts by reference to the excess point on each contract. Points beneath the excess points which are currently being reached and the current rate of settlement of claims by the individual syndicates or insurance companies. Arbitrary assessments were made of the pattern of settlements in respect of Shell claims and other Environmental Protection Act claims between now and 1999.

Financial Times: Accountancy muddle adds problems at Lloyd's

Accountants Price Waterhouse are uncovering a major accounting muddle which has contributed to the worsening problems of the Lloyd's underwriting members whose affairs are managed by interests of Minet Holdings, the insurance broker.

So far the official reason for the losses, given by Minet's Richard Beckett underwriting agency, is that huge insurance claims arose from product liability, pollution, medical malpractice, personal injury business and asbestosis claims all largely from U.S. clients, which have led to a "dramatic deterioration" in the underwriting results.

However, independent accountants, Price Waterhouse, acting for a group of concerned underwriting members who have formed a steering committee to protect the interests have started to unearth an accounting muddle within the agency which has had a dramatic effect on the results.

The problems being discovered are linked to the troubles which surfaced in late 1982 when its was discovered by Minet executives that money had been misappropriated from the underwriting funds of the Lloyd's members by other senior executives.

By last year Minet had established that nearly £40m had disappeared from the underwriting members' funds to interests of Mr Peter Dixon and Mr Peter Cameron-Webb, managers of the group's PCW agency, and their associates. The money was used for the two men's personal benefit.

A part of the underwriting members' business was reinsured via a company in Bermuda called Chiltern. The business was then channelled to companies in Gibraltar, which it has since transpired were controlled by interests of Mr Cameron-Webb and Mr Dixon. Blanket reinsurance arrangements were made for underwriting members whose affairs were managed by the Minet's underwriting agency.

When Minet identified the full extent of the seriousness of the troubles it sought to regularise the position and cancelled reinsurance programmes arranged by Mr Peter Cameron-Webb and Mr Dixon. Minet managed to recover £25m of the missing money and with Alexander and Alexander, another insurance broker whose Howden interests had been used to siphon off the money, put up a further £12.7m to make good the loss to the underwriting members. In all a near £40m compensation offer was made to the underwriting members for their missing funds.

Price Waterhouse is probing the extent to which the reinsurance programme arranged by Mr Dixon and Mr Cameron-Webb was involved in reinsuring real liabilities of the syndicate. At the moment it is feared that the underwriting members reinsurance support may have been knocked away in Minet's attempts to unscramble the mess.

There are other matters which Price Waterhouse are examining. Last year when Minet discovered the full amount of the funds missing it also indicated that trading losses of roughly the same amount, nearly £40m, had also arisen. Minet's compensation proved timely and the underwriting members used the money to pay for their trading losses. In return for accepting the money the underwriting members had to agree to assign away their legal rights to sue Minet, or anybody else, in connection with the recovery of further funds and the scandal to a joint company owned by Minet and Alexander and Alexander.

The underwriting members are upset that they took up the offer in the expectation that there were no further losses of significance in the pipeline. Since then Minet's agency, now called the Richard Beckett Underwriting Agency, has changed the basis of accounting for future losses, taking a more prudent view of future insurance claims. As a result, a further £60m of provisions are felt to be necessary and other claims of £17m are in the pipeline. Price Waterhouse wants to know why the basis of accounting was changed.

Moreover, the reinsurance programme as a whole, admitted Mr Graham White, managing director of the agency, has been inadequate.

Price Waterhouse is wondering why the reinsurance programme had limits on the amount which could be paid out to the underwriting members when the type of business reinsured called for the most extensive laying off of risks which could be arranged.

Some members of the Minet syndicates took out personal stop loss, but some found their personal stop losses were arranged with a tiny syndicate formed of Mr Cameron-Webb and his associates. The wording of their policies was so tightly drawn that they may be unlikely to recover any money

in the form of claims, while the small syndicate has been virtually guaranteed a sure-fire profit.

At the Moment a Steering Committee of underwriting members, whose honorary chairman is Lord Goodman, is trying to raise a fighting fund of £1.5m to pursue legal action against various parties.

Underwriting members are putting up the cash and are prepared to inject as much as £3.8m into the fund.

Mr Ian Hay Davison, Lloyd's chief executive, said yesterday that the results of the syndicates in which the Beckett underwriting members are grouped " are absolutely dreadful," but Lloyd's is not intending to provide financial support to the troubled members.

Financial Times: The story of a £130m loss

THE audience was nervous before the performance on Monday at the Royal Festival Hall. Port and brandies were ordered at the bar by some of the elegantly turned-out ladies and gentlemen to calm churning stomachs.

It was no ordinary occasion, for this audience was formed of around 500 or so members of the Lloyd's insurance market, and their professional advisers, who had come to listen to the managers of their affairs give them details of their investment in Lloyd's. The members had not expected good news and they did not get it. They were told that they had to be prepared to fund £130m of insurance losses which were expected to fall on them as underwriting members of Lloyd's.

"Come clean. you devil," one angry underwriting member shouted at she stage where the managers of his affairs at Lloyd s, Richard Beckett Underwriting Agencies were seated. It was a mark of the confusion and anger felt by him and his fellow underwriting members who want to know why the problems happened and whether they will happen again. Some face personal bankruptcy if they have to pay out for the insurance claims.

The underwriting members of Lloyd's are a very unusual class of investor. They are drawn from the wealthiest end of society and usually have to show that they have £100,000 of personal wealth before they become members. It is their wealth, which they pledge to Lloyd's, which allows the market to function. In return for their commitment they receive a share of the profits - but they also have to meet insurance losses even if those losses swallow up their entire personal fortunes.

Losses arise frequently for the 26,000 underwriting members at Lloyds. But the huge losses in this case have been compounded by the alleged misappropriation of funds. Members whose insurance business has been affected by the troubles include: the Duchess of Kent, the Duchess of Marlborough, Viscount Portman, Jeffrey Archer, the novelist, Adnan Kashoggi, the businessman and Charles Longbottom, a former Conservative MP.

Those members who work in Lloyd's are known as "vocational" members.

One farmer faces losses of more than £500,000. A secretary put into Lloyd's by a former boss at the Beckett underwriting agency faces losses of around £250,000. But whole families - including members, their wives, sons and daughters - face combined losses running to millions.

The underwriting members affected are arguing that the situation has called into question Lloyd's regulatory structure. They are highly critical of the management of the Richard Beckett Underwriting Agency and its parent company, Minet Holdings, the large insurance broker. "I would not recommend anyone to become a member of Lloyd's until this is sorted out," said Mr Keith Whitten, a 39-year-old City head-hunter who stands to lose £105,000 from his involvement as a member of Lloyd's.

The anger of the members, meanwhile, has been fired by other troubles which have surfaced at the agency in the last three years. In 1982 Lloyd's launched an emergency inquiry into an insurance contract arranged by former underwriting executives of Minet's underwriting agency interests. The Lloyd's inquiry had been prompted by accountants Deloitte Haskins and Sells who were examining the books of Alexander Howden, another large insurance broker.

Deloitte Haskins & Sells had already established that $55m had gone missing at Howden allegedly misappropriated by former Howden executives. But they had discovered a new problem. Highly unorthodox insurance contracts had been arranged by executives of underwriting interests of Minet.

The Department of Trade and Industry decided to appoint inspectors to investigate the matter and asked the City of London Police Fraud Squad to assist it in its inquiries. Shortly after, Mr John Wallrock, chairman of Minet, resigned when he admitted that he had secretly gained benefit from insurance transactions for the Lloyd's underwriting members within the group.

Minet later discovered that £40m of funds had gone missing which it alleged had been misappropriated by its two leading underwriting executives, Mr Peter Cameron-Webb and Mr Peter Dixon. They had spent the money on buying yachts, executive jets, production costs of two films "Let's do it" and ‘ The last Horror Show," oil and gas wells in the U.S., a French orange juice company and other private investments.

How then did it happen and what has brought hundreds of comfortably off individuals to the brink of financial ruin?

A key figure in the story is Mr Cameron-Webb, a highly respected underwriter within Lloyd's who had established a considerable reputation in the 1960s and 1970s. He was, according to one broker, "one of the ‘brains' of the market." His early business life was spent working with Sir Peter Green, the former chairman of Lloyd's.

Later Mr Cameron-Webb set up his own underwriting agency, called PCW, that was to be renamed "Richard Beckett Underwriting Agencies" by Minet once the troubles surfaced in later Years. The agency supervised the affairs of Lloyd's underwriting members and Mr Cameron-Webb took on insurance business on behalf of the members. It was a successful agency and in 1973 he decided to sell it on to Minet.

He received around £2m in the deal but drove a hard bargain with Mr Wallrock, the then chairman of Minet, in the way the agency was to be run. Under the arrangement, Mr Cameron-Webb and his partner Mr Dixon, were to be left with full autonomy in the running of the agency; they were to own the voting shares in the agency, while Minet would hold non-voting shares which received a dividend; and only one member of the Minet board was to be allowed to sit on the agency's own board - with the agency nominating the individual. It chose Mr Wallrock.

It was further stipulated that there was to be no involvement by Minet in the conduct of the agency unless the value of the asset became substantially impaired. By the end of 1982 action was needed. So for nine years, the entrepreneurial Mr Cameron-Webb, together with his partner Mr Dixon, was running his own show in the high risk business of insurance.

In arranging business for the members, Mr Cameron-Webb made extensive use of the world's arcane reinsurance markets. These are used to lay off the risks of the syndicates with other insurance concerns which are expected to pay claims to the syndicates in the event of large losses. To secure reinsurance the syndicates pay money in the form of a premium to gain the necessary protection.

But once Lloyd's started its inquiries and Minet launched its own investigation it was found that PCW was using reinsurance in a way that was not originally intended. The money, flowed out of the syndicates, ostensibly as a reinsurance premium, and was eventually channelled to companies in Gibraltar that were owned by interests of Mr Cameron Webb and Mr Dixon.

Minet found, among the contracts, that Mr Cameron-Webb had arranged hat around 5 per cent of the syndicates' premium income was passed across to companies which they owned. The contracts were drawn up so that in the event of losses the companies would pay 5 per cent of any claims falling on the syndicates.

Minet's Beckett agency has since sought to unscramble the mess. It located £25m of the missing funds in Gibraltar. But it faced a problem. If the money was to be returned to the members it had to be channelled back through a number of other companies. To channel the funds to their interests in Gibraltar, Mr Cameron-Webb and Mr Dixon had utilised independent companies outside the Minet group, which wanted the policies cancelled if the funds were to be returned. Minet's Beckett agency did that. The result of doing so was to remove a part of the syndicates' reinsurance programme.

Last summer, Minet arranged for a return of funds of £25m to the underwriting members which had allegedly been misappropriated by Mr Cameron-Webb and Mr Dixon. This was topped up by a £13.14m contribution by Minet and Alexander & Alexander, the parent company of Alexander Howden through which much of the missing money had been routed.

The offer was timely. Insurance claims were pouring into the syndicates arising from court cases against U.S. industrial companies by families of former employees who had contracted asbestosis. Other liability claims were coming through to the syndicates arising from the use of Agent Orange, the defoliant used during the Vietnam war. These claims were now arising on business which had been accepted in earlier years by the agency management. The losses from this and other business totalled £37.9m. So the £38.14m offer by Minet's interests helped wipe out individual losses of syndicate members who stood to lose up to £233,000 each.

Mr Ralph Bailey, a newly appointed underwriter, who had taken over the running of Beckett's 400-strong syndicate 918, decided that the possibility of other liability claims was so great that funds would be needed from the members in order to take account of future losses. Together with its sister syndicates, the members are to be asked to find £60m to fund future losses though the agency hopes that if the funds are provided the interest earned on the money over a possible 20 year period will be sufficient to meet the expected £130m of insurance claims which will arise.

Because of the mounting problems at the agency Minet has had to take urgent action. Richard Beckett is to be closed at the end of the year and the underwriting members will have to find other managers in the Lloyd's market to run their affairs.

The underwriting members are shocked that the possible claims were not anticipated last year by the current management of the agency, and are furious that Minet appears to be "walking away" from the agency's management. They are also arguing that they have not received up to £40m of interest on the money which went missing over the years.

For Lloyd's, the problems of the Minet agency have created their own regulatory nightmare. Much of what happened took place before Lloyd's legislation improving its regulatory powers was passed in the 1982 Lloyds Act. The powers of the Lloyd's authorities were limited in the extent to which they could intervene. Any intervention by the market authorities in underwriting affairs of the business was, and still is, resented by those working in a market where freedom of action is jealously guarded.

So Lloyd's has reacted to rather than prevented the problems. It is taking disciplinary action against Mr Wallrock, who is hoping to clear his name. Other disciplinary proceedings have been taken against Mr Dixon, who has been fined £1m, and expelled from the market subject to final ratification by Lloyd's council and completion of the disciplinary process. Both Mr Cameron-Webb and Mr Dixon are livings abroad and Mr Cameron-Webb is working on the Lloyd's style insurance market in Florida, the Insurance Exchanges of the Americas. Mr Cameron-Webb resigned from Lloyd's at the end of 1981 and is therefore now beyond the reach of Lloyd's disciplinary procedures.

Underwriting members hope that the troubles at the Minet agency will give impetus to further reforms at Lloyd's. A range of accounting reforms has already been pushed through and others are on the way. Better monitoring of what is happening in the market is also likely to be introduced. Unfortunately for the members of the Beckett agency the reforms have come too late to save them from their own financial agony.

The Cologne Re reported that only a small proportion of asbestosis cases were actually taken to trial up to 1982.

Note of telephone conversation held on 17 May 1985 between Robin Gilkes of Outhwaite Syndicates and N B Tyler of Ernst & Whinney.

Tyler said he understood Lloyd's might be reconsidering the ruling they had given E&W and Outhwaite on Tuesday 14 May. At this point Gilkes put the phone down on him.

We have .. given serious consideration as to whether the accounts should be kept open. After that consideration, and on the basis of all the information we have concluded that we can quantify an appropriate sum to close the account by reinsurance, and we are therefore proceeding to do so.

Financial Times: Agency chief sounds out Lloyd's on rescue

Mr Graham White, managing director of the stricken Richard Beckett Underwriting Agencies company in the Lloyd's insurance market, has been taking soundings in quest of a possible market rescue of the 1,525 underwriting members who face £130m of losses.