Mr. Stockwell became a Lloyd's Underwriter in 1979. He joined through the Outhwaite (Combined) Agency.

Mr. Stockwell was the first Name on the writ in Outhwaite I which was tried by Saville J. He was a member of the Outhwaite 1982 Names Association (but not of the Litigation Sub-Committee). A settlement was arrived at in about January 1992 whereby the Names recovered £116 million. Mr. Stockwell pointed out that this proved insufficient - "it went within 2 years".

In 1992 he became Chairman of the Lloyd's Names Association Working Party.

Mr. Stockwell chaired the Open Years Panel which reported in March 1993. In his witness statement Mr. Stockwell said that Mr. Robin Jackson and Mr. Merrett "were well aware of the fact that Lloyd's was grossly under-reserved for its liabilities in respect of asbestos and pollution and that it had been so under-reserved for over a decade at that time and that it had been a deliberate policy to only reserve enough to pay claims being settled, rather than to reserve for ultimate liability... I now have no doubt that we were told a fraction of what Jackson and Merrett knew and were being deliberately "steered" from making too dangerous a report for Lloyd's." The Report of the Open Years Panel is generally not consistent with the Names' case in this trial. I would have expected Mr. Stockwell to have learnt rather more about the asbestos problem in the course of the Outhwaite Litigation and his chairmanship of the Open Years Panel than he was prepared to accept in cross-examination.

Mr. Stockwell was adjudged bankrupt on 21.6.94 and discharged on 20.6.97. Over the course of 5 or 6 years (including this period) the action groups which were served by LNAWP paid about £600,000 on top of expenses in respect of Mr. Stockwell's services.

Mr. Stockwell was a member of the Kerr/Morse Panel.

Mr. Stockwell prepared detailed submissions on behalf of LNAWP to the Treasury and Civil Service Select Committee.

Mr. Stockwell's Trustee in Bankruptcy accepted the R&R Settlement Offer in the sum of about £5,000, but no payment was made.

Mr. Stockwell's public examination under oath took place in June 1997.

In his witness statement Mr. Stockwell said "Lloyd's ... grossly misrepresented the profitability of the market to the 20,000 Names who joined post 1980 or who increased their underwriting post 1980... If, at any time from 1978 onwards, Lloyd's syndicates had reserved in full for the known notified claims and had made proper reserves for their ultimate liability, Lloyd's would have declared huge losses and would have been obliged to leave the year of account open for a very substantial number of syndicates... New Names joining (if any) would not have taken on the inevitable losses... It is obviously possible that Lloyd's would not have survived the blow to its reputation that such losses would have meant; that fear clearly influenced the strategy of Committee Members who adopted a policy of letting tomorrow's income pay for tomorrow's claims. Their gamble did not work; it was in my view the oldest insurance fraud in the book - misrepresenting profitability by not reserving for known liabilities." When giving evidence Mr. Stockwell added that he came to the conclusion in 1997 that this was not simply a case of regulatory failure but a case of fraud.

When giving judgment on 20.12.1991 (on an appeal from a District Judge) in K.L. Construction Services Ltd v Charles Barr Furniture Ltd, His Honour Judge Rice described Mr. Stockwell as "a dishonest man, a man who is prepared to lie if he feels it will be of assistance to him...".

I have carefully considered Mr. Stockwell's evidence in this trial and formed my own opinion (independently of above comments). There are a number of aspects which cause me concern. In paragraph 17 of his witness statement Mr. Stockwell made serious allegations against the DTI by reference to a meeting which he did not attend. Mr. Stockwell failed to mention in his witness statement that he had himself attended other meetings with the DTI. In a further witness statement Mr. Stockwell described a meeting with Mr. Posgate on 30 October 1996 (where, he alleged, Mr. Posgate referred to a report prepared by the Bank of England on the "Armageddon" scenario of the current weight of asbestos claims). No mention of this part of the conversation with Mr. Posgate was made in paragraph 50 of his original statement, which described the same meeting with Mr. Posgate.

Mrs. Mackenzie-Smith (a member of the Bar) is one of the two co-chairmen of the United Names Organisation. She became a member of Lloyd's from 1.1.75.

It is evident that (as with so many other Names) Mrs. Mackenzie-Smith has suffered financially and in other ways as a result of her membership of Lloyd's, and I have every sympathy for her in this regard.

Mrs. Mackenzie-Smith's first witness statement contained an account of contact with and information received from Mr. John Osbrey-Taylor, a barrister who was found dead on 18 February 1999. Mr. Osbrey commenced proceedings in about 1991 against his members' agent, such proceedings falling within the Portfolio Selection category of the Lloyd's Litigation. Mr. Osbrey signed (i) a statement at the offices of ANNAN probably on 1 August 1995 and (ii) an affidavit in People of the State of California v Lloyd's, dated 15 February 1996. There are marked inconsistencies between (i) and (ii). In (i) Mr. Osbrey implied that he read a copy of the Murray Lawrence letter for the first time during 1994; in (ii) he stated that in or about 1989 he had been given a copy of the Murray Lawrence letter. In (i) he said that he saw Mr. Murray Lawrence in May 1995; in (ii) he said that in 1992 he went to see Mr. Murray Lawrence.

The most reliable guide to Mr. Osbrey's exchanges with Lloyd's from time to time is found in bundle M5, which contains documents passing between Mr. Osbrey and Lloyd's and file notes etc. A file note dated 30 June 1995 shows that Mr. Osbrey told Mr. Norwell (Manager, Membership Department) that as a result of a recent conversation with Mr. Murray Lawrence regarding the Murray Lawrence letter, Mr. Osbrey wished Lloyd's to sue him so that he could issue a counter-claim alleging fraud against both Mr. Murray Lawrence and Sir Peter Miller.

A document dated December 1998 shows Mr. Osbrey as a committee member of the Restitution Initiative.

Regrettably it appears that Mr. Osbrey was in a parlous financial state in his latter years (in receipt of substantial support from the Barristers' Benevolent Association) and to a considerable extent disturbed.

In a document entitled "Narrative Which Could Be Adapted To Become A Draft Affidavit" Mrs. Mackenzie-Smith wrote - "In the summer of 1994, I first saw the now famous Murray Lawrence letter... The letter came as a shock to me as it seemed to demonstrate that Lloyd's were not after all fraudulent but had in fact disseminated the information concerning impending losses to "all underwriting agents". I immediately made enquiries in all directions and learnt that no agent could be found who admitted having received the letter and that there was a possibility that it had never been sent."

The document entitled "Narrative Which Could Be Adapted To Become A Draft Affidavit" was exhibited to Mrs. Mackenzie-Smith's witness statement. Another version of this document with manuscript comments/corrections by Mr.Osbrey was found in the box of Mr. Osbrey's papers produced by Mrs. Ridley-Day (see below). Mr. Osbrey's comments/corrections are highly material and show that Mr.Osbrey would not have been prepared to put his name to the matters attributed to him in the document without substantial amendments.

Mrs. Mackenzie-Smith's account of her conversation with Mr. Ian Posgate in paragraph 42 of her witness statement was incomplete. It is important to note the amendments that Mr. Posgate made to the draft statement prepared for him.

When giving evidence Mrs. Mackenzie-Smith found it difficult to distinguish between the role of a witness and the role of an advocate.

Mrs. Mackenzie-Smith gave evidence as to the results of three mail shots directed to managing agents, members' agents and combined agents in an attempt to ascertain to whom the Murray Lawrence letter was sent.

Mr. Henderson is a consultant working for UNO and also a member of the Committee of UNO. He has assisted Names in other proceedings in this jurisdiction and in the United States.

Mr. Henderson referred to a meeting with Mr. Ian Posgate in March 1999 at the offices of UNO in Whitechapel Road. It is important to note the amendments that Mr. Posgate made to the draft statement prepared for him.

Captain Hindle had a distinguished maritime career. In 1976 Trinity House invited him to become a Young Brother. He commenced underwriting at Lloyd's with effect from 1 January 1979. His members' agent was C. Rowbotham & Sons (Underwriting Agency) Ltd.

I should emphasise that I am not concerned with the question whether Captain Hindle might have had a portfolio selection claim (or any other form of claim) against his members' agent, or any claim against any managing agents.

I am concerned with the issue whether Captain Hindle as one of the sample Names relied upon any of the alleged (fraudulent) misrepresentations during the period 1978 to 1988.

It was clear from Captain Hindle's evidence that he misunderstood certain essential features of the Lloyd's market. He thought that the Committee of Lloyd's appointed syndicate auditors. Further he thought that "the underwriter was controlled to some extent by the policy signing office, which was in turn appointed by the Committee of Lloyd's". Captain Hindle said he would not have joined Lloyd's if he had known that his liabilities and the risk could extend beyond a three year period.

Captain Hindle said that he relied on Lloyd's Calendar 1978 when he joined Lloyd's. Subsequently he talked to his members' agent (and his witness statement refers to a number of conversations with his members' agent). There was not a copy of the relevant Lloyd's Brochure in Captain Hindle's files. He said that the Lloyd's Calendar 1978 "was on the ship and I remember reading it and that was the reason I joined Lloyd's...after (speaking) to my agent and (obtaining) more information."

Captain Hindle sustained very serious losses in respect of each of the years 1988 to 1994 and I have every sympathy for him. I doubt whether he was ever an appropriate candidate for membership of Lloyd's.

I am not persuaded that Captain Hindle relied upon any of the alleged (fraudulent) misrepresentations during the period 1978 to 1988 (assuming such misrepresentations could be made out).

At the time of his application for underwriting membership Sir William Jaffray was a fine art dealer. Prior to that he had had brief experience as a loss adjuster. Sir William commenced underwriting at Lloyd's with effect from 1 January 1982. His first members' agent was Kingsley Underwriting Agencies Ltd.

I should emphasise that I am not concerned with the question whether Sir William might have had a portfolio selection claim (or any other form of claim) against his members' agent, or any claim against any managing agents.

I am concerned with the issue whether Sir William as one of the sample Names relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period.

Mr. Kingsley provided Sir William with a brochure prepared by Kingsley Underwriting Agencies Ltd.

Sir William did not see the 1980 and 1981 Aggregate Results published in Lloyd's Log. It is unclear whether he saw the 1982 and 1983 Global Accounts.

In his affidavit in the Society of Lloyd's v Fraser and Others, Sir William said:-

A document typed by Sir William in about the summer of 1987 shows that he was taking portfolio selection advice from persons other than his members' agent.

I am not persuaded that Sir William relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period (assuming such misrepresentations could be made out). In my view the probability is that Sir William relied on his conversations with his first and second members' agents (and possibly, but to a more limited extent, his conversations with his cousin).

At the end of his evidence Sir William said what he thought Lloyd's should have done "if they had been operating properly and in an honest manner". "The Chairman should have called an extraordinary general meeting in 1980 or, if one wants to be fair to Lloyd's, say, by 1982. There should have been no recruitment of Names beyond that point, that should have been stopped... There should have been a public statement. Reconstruction and Renewal or a similar salvage operation, plus an Equitas type reinsurance, should have happened between 1980 and 1982...and not 16 years later in 1996 when the vast quantity of damage had been done. If that had been done we would not be in this Court now."

I refer to Sir William's underwriting results. These show that he suffered significant losses on Gooda Walker 387 (personal stop loss) in 1983 and 1984 and a substantial loss on the Warrilow (long-tail) syndicate 553 in 1984 (see above). He suffered a further significant loss on syndicate 387 in 1985 and substantial losses on Gooda Walker syndicates 290 and 298 in 1989. Although Sir William was on Secretan 367 (a long-tail syndicate) between 1982 and 1989, his losses in 1988 and 1989 on that syndicate were modest compared with his losses in 1988 and 1989 on LMX syndicates.

Mrs. Evans commenced underwriting at Lloyd's with effect from 1 January 1988. At that time she was still married, but has since divorced. She has four children. Her members' agent was R.W. Sturge & Co.

I should emphasise that I am not concerned with the question whether Mrs. Evans might have had a portfolio selection claim (or any other form of claim) against her members' agent (her witness statement refers to a number of conversations with her members' agent), or any claim against any managing agents.

I am concerned with the issue whether Mrs. Evans as one of the sample Names relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period.

For some years Mrs. Evans has been co-chairman of the Norwich Union Action Group at times unpaid, at times paid. She has been on the committee of UNO since UNO started, but has not been paid for her work with UNO.

Mrs. Evans said that she was induced to join Lloyd's by a combination of matters. "It was certainly the reputation of Lloyd's as a very honourable market...I read all the Brochures. They were presented to me as if this was a really...good thing...it was the best time to join. I checked this out with people that I knew and then I went back to Mr. Coleridge and asked him. But the Brochures...were really the thing that did it...because they (were)...written...I would want something in writing as well, so the Brochures were very important to me...also...the Lloyd's building. It was totally spectacular, breathtaking, it was so futuristic. It spelt so much of the future. ...It seemed incomprehensible that they could...take...the kind of risks that they were taking with someone like me."

Mrs. Evans sustained very serious losses and I have every sympathy for her. I doubt whether she was ever an appropriate candidate for membership of Lloyd's.

I am not persuaded that Mrs. Evans relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period (assuming such misrepresentations could be made out). In my view the probability is that Mrs. Evans relied on her conversations with her members' agent.

Dr. Munn's witness statement was admitted in evidence (Lloyd's not having any cross-examination).

Dr. Munn is a registered medical practitioner. During 1985 he decided to become a member of Lloyd's. His wife became a member in 1987. In his witness statement Dr. Munn said:-

Dr. Munn attached to his statement a letter from Lord Kimball an elected external member of the Council of Lloyd's and the Chairman of Dr. Munn's Rota Committee. The letter from Lord Kimball dated 17 February 1995 stated:-

Mr. Mackenzie-Smith gave evidence about the availability of a book entitled "A View of the Room" by Ian Hay Davison. I do not accept that Lloyd's purchased copies of this work in order to destroy it.

Mr. Blundell's wife joined Lloyd's for the 1987 underwriting year with Bolton Ingham as her agents. Mr. Blundell gave evidence of a conversation with Mr. Skey in 1988/89/90. According to Mr. Blundell's witness statement Mr. Skey "told me on the basis (of) what he had discovered at Lloyd's, he had told his sister to resign immediately. I presume he had told her in the 1970s or perhaps in the early 1980s."

This evidence did not assist me. First, Mr. Blundell did not ask what Mr. Skey "had discovered". Second, it seems that Mr. Skey's sister did not resign from Lloyd's until much later.

Mr. Bradley joined Janson Green in October 1967 as an underwriter. He wrote marine business into syndicates 932, 933, 934, 941 and 989. From about 1970 he also wrote some non-marine business into syndicate 989. Mr. Bradley stayed at Janson Green until the latter half of 1977 when he was invited by Mr. Bryan Barrie to be his equal partner and active joint underwriter in the Bryan P. Barrie Underwriting Agency. Syndicate 901 wrote marine and syndicate 921 non-marine business. In his witness statement Mr. Bradley said " We specifically wanted to avoid asbestos liabilities being aware of the potential problem." The Bryan P. Barrie Underwriting Agency received three copies of the Murray Lawrence letter (one for the managing agency, one for Bryan Barrie as active underwriter of syndicate 901 and one for Mr. Bradley as active underwriter of syndicate 921).

In about 1993 or 1994 Mr. Bradley began to work for the Names Defence Association.

From about 1988 when Mr. Bradley resigned from Bradley Gascoigne, through to the time when he was working for the Names Defence Association, Mr. and Mrs. Bradley were in hardship. Mr. Bradley has received payment to date from the Names Defence Association of about £10,000.

I set out below examples of the unsatisfactory nature of Mr. Bradley's evidence.

In his witness statement Mr. Bradley said:-

According to Mr. Bradley the next day he reported the conversation to Mr. Bill Maitland, a fellow underwriter at the Janson Green box. Mr. Maitland spoke to Mr. Peter Green who was very interested in what he (Mr. Bradley) had to say, but he was told not to gossip about the conversation with anyone in the market.

There were a number of unsatisfactory features of Mr. Bradley's evidence in relation to the alleged conversations at Walton Heath. They included the following: (i) When Mr. Bradley's various accounts of the alleged conversations with Mr. Rokeby-Johnson are compared, there are a number of material inconsistencies. (ii) In paragraph 3 of his draft affidavit for the Secretan Action Group dated February 1994 Mr. Bradley wrote "The next day I mentioned my conversation with Rokeby-Johnson to Bill Maitland in the box. Shortly after this he excused himself saying that he had something to do elsewhere. Obviously he then went to speak to Peter Green because the next day he told me that if I was asked about asbestosis I should refer the matter to Peter Green." On this account Mr. Bradley mentioned his conversation with Mr. Rokeby-Johnson to Mr. Maitland on Friday 4 October 1973 and Mr. Maitland spoke to Mr. Bradley again (having spoken to Mr. Green) "the next day" i.e. on the Saturday (not a working day at Lloyd's). (iii) In his draft affidavit for the Secretan Action Group Mr. Bradley wrote "My opponent was Ralph Rokeby-Johnson, the leading non-marine underwriter at Sturge". In fact Mr. Rokeby-Johnson was not the leading non-marine underwriter at Sturge at the time. When this was pointed out to Mr. Bradley in cross-examination, he said "We had better tear up this Secretan statement". (iv) In a statement dated 23 February 1995 Mr. Bradley wrote "Ralph Rokeby-Johnson spoke of possible claims of $66 billion by 1990 and $120 billion by the year 2000. These figures have now been confirmed as being the same figures as those in the Selikoff Report of 1964..." The alleged figures were not "the same figures as those in the Selikoff Report". When cross-examined as to this Mr. Bradley said "When I was making this, talking this over with the Names Defence Association, James Baird said to me...Those figures...are in...Selikoff". (v) In one of his manuscript accounts headed "Asbestosis at Walton Heath" Mr. Bradley wrote "It was either late 1969 or early 1970: the Lucifers match". This was subsequently corrected to read "It was 4th October 1973 (confirmed by Ian Jeffrey): Lloyd's GC Autumn Meeting". (vi) In his manuscript account headed "Asbestosis at Walton Heath" Mr. Bradley wrote "I was disturbed over the incident. I knew RJ was on the Asbestosis Committee and that they had not given the market much information." Mr. Bradley accepted that this was a "slip". The Asbestos Working Party was not set up until 1980. (vii) In the same manuscript account Mr. Bradley recorded Mr. Rokeby-Johnson as saying "See whether I am right or not - I shall be gone long before you". In fact Mr. Rokeby-Johnson is considerably younger than Mr. Bradley. (viii) In the same manuscript account Mr. Bradley wrote "Ralph, then on the back of his card, very quickly drew out a progression of known cases...". In cross-examination Mr. Bradley said "I don't think he did that; I think I did it". (ix) For the first time when giving evidence Mr. Bradley asserted that on 4 October 1973 Mr. Rokeby-Johnson specifically warned him off joining certain syndicates which were listed in a document, which Mr. Bradley produced when giving evidence. (x) Further (although this is a point of less significance) Mr. Bradley's various accounts referred to the alleged conversation taking place on differing holes on Walton Heath golf course.

Mr. Bradley went with other representatives of Lloyd's to the United States in May 1979 on the Keith Brown Foundation Study Tour.

In his witness statement Mr. Bradley said :-

There were a number of unsatisfactory features of Mr. Bradley's evidence in this respect. They included the following. When Mr. Bradley's various accounts of the alleged conversation with Mr. Hitchcock are compared, there are a number of material inconsistencies. The following points should be noted by way of example. The visit took place in May 1979 and not in September 1979 as asserted in his witness statement. In his witness statement Mr. Bradley said that Mr. Alan Parry was then chairman of the Foundation (but in fact Sir Henry Mance was Chairman). In his witness statement Mr. Bradley said that he was a member of the Keith Brown Advisory Committee at the time (but he was not). In a document in Mr. Bradley's handwriting written in about 1992 (and in a LNAWP newsletter dated January 1993) reference is made to Tom "Hopkinson" and not Tom Hitchcock. Mr. Bradley's account is difficult to reconcile with the draft itinerary (dated 7.5.79) and the unofficial notes on the New York trip prepared by Mr. R. M. Pateman dated May 1979. In a manuscript account dated about 1992 Mr. Bradley wrote "He urged that Lloyd's should build up to a membership of say 200,000 to 250,000 members to pull in the required capital needed to run the asbestosis tidal wave. He has told Lloyd's this - he told me Lloyd's was on a membership drive..." In a signed statement dated 23 February 1995 Mr. Bradley said "We did not calculate precisely the number of Names that Lloyd's should seek to recruit...we talked in terms of 25,000, 50,000 or possible even a 100.000 as a goal. I jokingly added "What about even 250,000?". He laughed and replied "Yes, why not?"

When Mr. Bradley gave evidence he said that he attended a private dinner with Mr. Hitchcock on Friday 18 May 1979. He was recalled for further cross-examination when it emerged (as a result of further statements from Mr. and Mrs. Hitchcock) that Mr. Hitchcock travelled to Japan that Friday, as confirmed by his passport. Faced with this evidence Mr. Bradley said that "there is the possibility it could be another person". Mr. Bradley added that he did not recognise the photograph in Mr. Hitchcock's passport - "I don't remember him being bald".

In his witness statement Mr. Bradley said:-

There were a number of unsatisfactory features of Mr. Bradley's evidence in relation to this alleged conversation. They included the following. The "attached copy" was not a copy Mr. Bradley "unearthed...very recently in November...1999". Further Mr. Bradley mentioned the alleged conversation with Mr. Schooling for the first time in his witness statement. It was not mentioned in his earlier accounts (see his draft affidavit for the Secretan Action Group dated February 1994, his statement of 23.2.1995 and his manuscript notes).

In his witness statement Mr. Bradley said that at the hearing on 1 February 1995 before the Treasury and Civil Service Committee he informed the Committee of a telephone conversation he had had with Mr. Charles Gibb, a one time deputy chairman of Lloyd's. He said:-

Mr. Gibb died in early 1993.

Mr. Bradley produced a tape of a conversation with Mrs. Gibb dated 28 March 2000. Mrs. Gibb was recorded as saying that she had changed her mind about providing Mr. Bradley with a letter, whereupon Mr. Bradley responded that he was going to pull out (from giving evidence). In the event Mr. Bradley attended pursuant to a witness summons.

On 29 October 1990 Mr. Bradley wrote to Mr. Murray Lawrence setting out his thoughts on the future of Lloyd's entitled "Towards Two Thousand". When it was pointed out to him in cross-examination that there was no suggestion in that document of any of the type of complaints made in these proceedings, Mr. Bradley replied "If by producing that...I've cut the ground from under the Names in this court, I...hereby apologise to them."

On 18 November 1991 Mr. Bradley wrote to Sir Patrick Neill Q.C. (as Chairman of the Feltrim Loss Review Committee) describing the transcript of his evidence to the Loss Review Committee as "no different from a Frankie Howard script, at its worst, being studied with almost no cohesion or coherence."

In reasons for an arbitration award dated 5 July 1995 Mr. Jeffrey Gruder Q.C. said :-

In an interim final award dated 10 February 1997 Miss Elizabeth Birch said of Mr. Bradley's evidence as a purported expert:-

When cross-examined in this case Mr. Bradley was asked how many Names did the members' agents side of Bryan P. Barrie Underwriting Agencies Ltd have? He replied, one. In July 1996 in connection with the same arbitration Mr. Bradley wrote to the Financial Times Library "The Arbitrator has now instructed me to write to you asking if you would kindly supply me with the exact copy of [a] report in the Financial Times 26 July 1984". On 31 July 1996 the Arbitrator wrote to Mr. Bradley "...you are well aware that at no time have I asked you to write this letter. ...It is wholly inappropriate for you to represent that it is a request from me, when it is not."

Mr. Mackinnon was the underwriter on 927/935. He was also the underwriter on two specialist stop loss syndicates, 134 and 184. Syndicates 134 and 184 were two entirely separate syndicates with different sets of Names. Mr. Mackinnon was an articulate witness.

Mr. Mackinnon explained that a feature of a stop loss syndicate is that it closes its accounts at the end of the fourth year. He said that if he had known at the time, what is now known about APH claims, he would never have written the stop loss policies.

As to syndicate 927/935, the 1981 account was left open at the end of the third year but closed at the end of the fourth year into the 1983 account. One reason for this was the development of latent disease claims on the run-off of syndicate 60, contained within syndicate 935. The 1984 year of account of 935 was left open. The 1984 account of 927 was closed in the usual way.

In his underwriter's report dated 21 May 1987 Mr. Mackinnon wrote:-

A limited run-off had been bought in 1982 which was written as to 50% by Outhwaite 317 and 50% by the Kellett syndicate.

Mr. Mackinnon said that each year he sought to reserve fully with the benefit of the information coming through from attorneys and the AWP. He thought he had got his reserving right using a pessimistic basis for determining the level of IBNR. When he bought a limited run-off in 1982, he refused an offer that would have provided greater protection. He left the 1984 year of 935 open at the end of 1986 in part because of a problem of a declining stamp and largely because the syndicate 60 run-off into 935 was very large in relation to the size of syndicate 935. He established reserves for the account in run-off but unpredicted increases in claims thereafter caused him to have to make further substantial increases in the reserves. Mr. Mackinnon did not believe at the time that the market was under-reserved, otherwise he would not have continued to write stop loss which he did until 1988. It is ironical that the accounts as at 31 December 1987 record that:-

At one point in his evidence Mr. Mackinnon said of asbestos-related claims "We knew how much we would pay as a syndicate for each claim. The multiple of claims was the problem..."

In his witness statement Mr. Mackinnon said "I am not aware of ever having received" the Murray Lawrence letter. When giving evidence he said "I maintain I have no recollection of having seen it...it was sent to underwriting agents, according to the letter. On that basis I should have seen it. I have no recollection of having seen it, but...I probably got a thousand letters from the Committee of Lloyd's during my life as an underwriter".

In early 1992 a Loss Review Committee sat in respect of 134 and 184.

Mr. Cowtan joined the Alders syndicate (122/311/118) in 1967. He remained with that syndicate until the end of 1983. He was the Senior Claims Manager for the general non-marine section. 311 had a significant exposure to asbestos; 118 was exposed to a slightly lesser extent. In his last 18 months/2 years Mr. Cowtan occasionally sat in at a meeting of the AWP on behalf of Mr. Nelson.

Mr. Cowtan started underwriting at Lloyd's on 1 January 1974 as an assisted Name. Mr. Cowtan said that he increased his line on the Alders syndicate before he became aware of the seriousness of asbestos. He remained a Name until the end of 1978. When asked "What caused your decision to stop underwriting?", Mr. Cowtan replied "I was warned that there was a very serious problem arising from asbestosis and also there were a number of quite serious product claims". Mr. Cowtan was shown a letter from Bellew & Raven (Underwriting Agents) Ltd to the Manager of the Membership Department at Lloyd's dated 19 June 1978 which stated "Mr. Cowtan is worried about the increasing competition in the insurance world and has decided to wind up his Lloyd's affairs before his retirement." Mr. Cowtan said he had not seen the letter before and was very disappointed at its content.

Mr. Cowtan explained that he had not provided a witness statement to the Names because "It was being written for me...A number of the comments that were being put in there...were simply incorrect". He said that he thought the witness statement was prepared by Mr. Stockwell, although he could not be 100% sure of that.

Prior to 1988 Mr. Kingsley ran three members' agents. After about 1988 Kingsley Underwriting Agencies Ltd and Sudbrook Underwriting Agencies Ltd merged into Lime Street Underwriting Agencies Ltd. Mr. Kingsley was a director of Holmes Kingsley Carritt Underwriting Agencies Ltd a managing agency, which was renamed Holmes Hayday Underwriting Agencies Ltd (syndicate 694) before being acquired by Sturge Underwriting Management Ltd. He resigned as director of the managing agent of syndicate 694 on 1 November 1985 to comply with the divestment provisions of the Lloyd's Act 1982. Mr. Kingsley was also a director of Hardcastle Underwriting Agencies Ltd a managing agency, which was renamed Cutler Underwriting Agencies Ltd (syndicate 319/318). He was in addition a director of Scott Underwriting Agencies Ltd., a Lloyd's members' agency. Mr. Kingsley is now retired.

Under the R&R settlement Mr. Kingsley was disentitled to debt credits of over £1.3 million. This was because he was an executive director of Lime Street Underwriting Agencies Ltd, who at the time were members' agents to Names who suffered excessive losses above market average. A large percentage of these Names were placed on the Feltrim and/or Gooda Walker syndicates. In cross-examination Mr. Kingsley agreed that with the benefit of hindsight a spiral was created - one set of Lime Street Names wrote stop loss cover for the other set of Lime Street Names, both sets also writing excess of loss cover on Gooda Walker and/or Feltrim.

In his statement Mr. Kingsley said "We were one of the first members' agents to produce a questionnaire which we completed together with each underwriter... whenever possible at his office. This was done with a view to establishing a pattern or proforma, for a dialogue with each underwriter, who we supported by placing our Names on their syndicates." Mr. Kingsley said that his agency started using questionnaires in about the late 1970s. They became more extensive in the light of experience. He produced an example dated 28.2.90 to which I refer. Unfortunately he was unable to produce examples directed to long-tail syndicates in the late 70s/early 80s.

Mr. Kingsley in cross-examination, was taken through the reports and accounts of syndicate 694. He agreed that this was a syndicate with a substantial long-tail element on its books written since 1977. The syndicate increased its reserves in most years, even though previous years' reserves were believed to be accurate.

Mr. Kingsley again in cross-examination, was taken through the reports and accounts of syndicate 319/318. The 1982 year of account of syndicate 319 was left open because (according to the Underwriter's Report) of "a worsening of settlements on the years 1978 to 1980 in respect of asbestosis, pollution and general US casualty claims. This unexpected increase in settled and outstanding claims has been caused by considerable deterioration in a syndicate run-off written in 1978 as well as a small number of London market casualty excess loss contracts. Because of the difficulty surrounding the estimating of reserves from these long-tail claims the 1982 year of account will be left open, with an audit deficiency of 139%". Mr. Kingsley said that the reserves proved reasonably adequate in 1985, 1986 and 1987, before a subsequent deterioration in 1988 and 1989.

In his witness statement Mr. Kingsley said " I was chairman or director of four separate Lloyd's agencies, yet I can categorically state that I never saw the Murray Lawrence letter at that time. I did not in fact ever see the letter until the early 1990s when I was very surprised to read its contents..."

In his witness statement Mr. Kingsley set out a schedule of certain run-off contracts entered into by Mr. Outhwaite in 1981 and 1982. He said "I have researched 32 run-off contracts placed partly or wholly with Outhwaite syndicate 317/661 between 1977 and 1983 and have noted that 28 of these related to Lloyd's syndicates. In the case of 27, I have noted some connection between the reinsured syndicate and one or more of the individuals identified in the pleadings being allegedly party to fraudulent representations by Lloyd's." Mr. Kingsley was cross-examined by reference to a rebuttal schedule prepared by Lloyd's.

When asked 'what went wrong?', Mr. Kingsley said that run-off contracts were placed with inside knowledge and that the 1979 year of account should have been left open by syndicates affected by asbestos-related claims.

In about 1976 Mr. Cavenagh-Mainwaring joined R.H.M. Outhwaite (Underwriting Agencies) Ltd as an assistant agency manager. Whilst with the Outhwaite Agency Mr. Cavenagh-Mainwaring became an underwriting member of Lloyd's. In 1978 Mr. Cavenagh-Mainwaring joined the Oakeley Vaughan members' agency. In 1982 he moved to C.T. Bowring (Underwriting Agencies) Ltd (a combined members' and managing agents) on the members' agency side. When Mr. Sedgwick Rough was brought in 1985 or 1986 Mr. Cavenagh-Mainwaring ceased to have any responsibility for dealing directly with prospective Names. In about early 1987 Mr. Cavenagh-Mainwaring left Bowrings and joined Hinton Hill. Thereafter he worked for a time for the Outhwaite Action Group.

A dispute between Mr. Cavenagh-Mainwaring and Murray Lawrence Members' Agency Ltd (formerly Bowring Members' Agency Ltd) was the subject of an arbitration. Mr. Cavenagh-Mainwaring claimed damages for breach of contract and/or duty by the Respondent Agent in relation to his participation on Gooda Walker syndicate 290 for the underwriting year of account 1989. In November 1995 Mr. Stephen Ruttle as sole arbitrator determined that Mr. Cavenagh-Mainwaring's claim failed. In Reasons for the Award the arbitrator said "I have no doubt that (Mr. Cavenagh-Mainwaring) took his own decisions about his portfolio and that he did not rely in anything other than a most general way on the views and judgments of others at the Agent".

A letter dated 3 June 1982 sent by C.T. Bowring (Underwriting Agencies) Ltd to Names for whom they acted as members' agents, made specific reference to asbestos-related risks. Mr. Cavenagh-Mainwaring said that he did not think he would have seen the letter at the time because the main administration was two floors above the floor on which he worked. Mr. Cavenagh-Mainwaring said that he did not see and was not aware of the Murray Lawrence letter of 18 March 1982.

When asked 'what went wrong or what was wrong'?, Mr. Cavenagh-Mainwaring said that in the late 70s/early 80s there should have been much more co-ordination of intelligence being passed down to the members' agents and new Names. Rota Committee Chairmen should have mentioned asbestos-related risks.

The Names served a notice complying with section 2(1) Civil Evidence Act 1995 and CPR 33.2 in respect of Mr. Donner's evidence. Mr. Donner's bodily health was identified as the reason why he was unable to attend to give evidence in person. This was confirmed by medical evidence. Due to the medical evidence tendered, Lloyd's did not apply to cross-examine Mr. Donner on his statement under CPR 33.4(1) or to exclude his evidence. Lloyd's served a notice under CPR 33.5 indicating its intention to attack Mr. Donner's credibility.

Lloyd's attacked the credibility of Mr. Donner by reference to a number of documents. These included a letter dated 10 January 1996 to Mr. Richard Rosenblatt which included the following - "...The evidence appears to indicate that most of the US fraud allegations and litigation are based on Donner evidence without, as far as I am aware, my express permission. This may be a cheap way of proceeding so far but it was bound to incur difficulties in the end, because you simply do not have the totality of evidence in my possession to give any fraud action the best chance of success. In order, therefore, to ease your position, I would be prepared to accept 50% of my fee in advance i.e. US$500,000 and, perhaps you would suggest the basis upon which an "exceedingly generous success fee" might be formulated."

In the late 1970s Mr. Goodwin-Self joined PCW becoming a personal assistant to Mr. Peter Dixon. Mr. Goodwin-Self's job was to recruit direct Names for PCW. Mr. Goodwin-Self ran a sub-agency called Trewshire. He worked in PCW's fifth floor offices at 52 Lime Street.

Mr. Goodwin-Self said that in about May/June 1983 he saw documents being shredded. In his witness statement he said:-

When cross-examined Mr. Goodwin-Self confirmed that the investment department within the PCW offices was in the same room as that in which documents were shredded.

Mr. Smallbone's witness statement was admitted in evidence (Lloyd's not having any cross-examination). Mr. Smallbone had considerable experience as an employee/director of Lloyd's brokers.

Mr. Anstey's witness statement was admitted in evidence (Lloyd's not having any cross-examination).

Mr. Anstey spent his business life in the London insurance market as an insurance broker. He said in his statement:-

Mr. Hulse's witness statement was admitted in evidence (Lloyd's not having any cross-examination).

Mr. Hulse spent most of his working life in the Lloyd's market. Between 1980 and 1984 he was Executive Director of Robert Barrow Ltd., Lloyd's brokers. Between 1985 and 1986 he was Chairman of H. Pitman & Co Ltd., Lloyd's brokers. Between 1986 and 1988 he was a Director of K.C. Webb & Co Ltd., a Lloyd's members' agency. In his witness statement Mr. Hulse said:-

In September 1954 Mr. Mason joined the marine claims department of the Lloyd's broker Sedgwick Collins & Co Ltd. He was with Sedgwick until the end of 1965. He left Sedgwick to join Pitman and Deane at the end of 1965 where he stayed for a short time before joining Clarkson. Mr. Mason joined Edward Bates in 1973 but returned to Clarkson in 1981. In 1987 the merger with Bain Dawes took place. Mr. Mason said that in 1979 he was asked to join Lloyd's. He spoke to Mr. Philip Froude the Claims Manager of Janson Green. Mr. Mason said to Mr. Froude "I am thinking of joining Lloyd's, but I know about asbestosis and I am concerned about the stories of mounting losses. Do you think I should join?" According to Mr. Mason, Mr Froude replied "I wouldn't join if I were you".

Mr. Mason said that it seemed to him in both 1979 and 1984 that there must be a mass of claims arising from hazards such as asbestosis that had not been notified to the market in general, which would be covered by the type of General Liability Contracts with which he was familiar from his time at Sedgwick.

Mr. Steel was called at a very late stage in the trial. On 16.6.2000 he sent a fax to Mr. Freeman of Grower Freeman & Goldberg which read:-

The above fax was exhibited to a statement from Mr. Freeman dated 19 June which included the following in paragraph 7:-

When called to give evidence, Mr. Steel said that the dinner was in November 1986 and not in the summer of 1984. He said he heard Mr. Lawrence say "You bloody brokers, Lloyd's is nearly bust." Mr. Steel was not elected a member of the LIBC until 1986. When he gave evidence Mr. Steel said that at the time of the dinner the Chairman of the LIBC was not Mr. Robert Kevill but Mr. Simon Arnold. Mr. Steel in the course of his evidence produced a copy of Mr. Freeman's statement with manuscript corrections/notes thereon. As to paragraph 7, Mr. Steel had added in manuscript "He was not on any other long-tail NM syndicates." Mr. Steel said in the course of his oral evidence that the second sentence of paragraph 7 ("He felt that something was very wrong and remembers that he decided to leave the Dick Hazell syndicate 190") was wrong. That sentence should have read "I had already left the Dick Hazell syndicate 190." Mr. Steel had resigned from syndicate 190 in 1984 (i.e. 1984 was his last year of underwriting). Mr. Steel increased his underwriting at Lloyd's in 1986 and again in 1988. Mr. Steel was put in touch with Mr. Freeman by Mr. Harvey White (see below).

When cross-examined Mr. Steel said that he did not know who Mr. Lawrence had been talking to prior to the outburst which he described.

Mr. Steel was on the committee of LIBC for the years 1986 to 1989 inclusive.

In view of the many changes in Mr. Steel's account it is difficult to place reliance on his evidence. The positioning at dinner which he describes suggests that if any such conversation took place, it occurred towards the end of Mr. Steel's time on the Committee. Such material as survives suggests that the senior members of LIBC sat near to the Chairs at such dinners. In 1986 Mr. Steel was a new member of the LIBC.

The statement of Mr. W.G. Brown was admitted in evidence as Mr. Brown lives in Australia.

Mr. Sturge left the employment of A.L. Sturge & Co in 1972. He formed Chatset in 1981 with Mr. John Rew to collate and publish comparative syndicate results. His full-time employment with Chatset started in 1989.

Mr. Sturge spoke at a conference in February 1985 entitled 'The Future of Lloyd's' on the subject 'Lloyd's - An Outside Member's View'. The conference papers were published in about March 1985.

Mr. Sturge was a member of the Open Years Panel.

Mr. Sturge struck me as a careful witness who provided a reasonably balanced account.

In the Chatset Lloyd's Syndicates Results 1978 (published in 1981) Mr. Sturge wrote "Asbestosis has been described as the largest ever insurance loss and will not only affect the non-marine market."

Mr. Sturge was cross-examined about his perception of the asbestos problem facing the market as at certain dates. He said that in late 1982 his perception was as follows. Asbestos-related claims were potentially a serious problem for some Lloyd's syndicates. Any members' agent who read the press, the reports and accounts and Chatset would be aware that the Lloyd's market was facing problems as result of exposure to asbestos payments. The impression he formed from the underwriters' reports was that it was a serious problem, but containable. It was not something that was going to hit Lloyd's as a whole in a major way and cause the kind of problems that were seen later on. He was, however, not privy to the detailed information that the AWP had.

Mr. Sturge said in his witness statement that it was not until 1992 that he felt there was enough data in the public domain which an external analyst or Name could properly use to assess the full damage and impact on the market of latent liability.

Mr. Sturge emphasised the importance of the Settlement Statistics which "came my way when we were compiling the 1994 run-offs". Table 2 shows "Non-Marine All Other US Business". This document "opened one's eyes to the way that the US liability account had built up over the years and how, if one projected those figures forward, even in the early 1980's it was clearly apparent that the US liability account was running at a serious loss."

As to Mr. Aaronson's Report, Mr. Sturge said that in his opinion it was wrong to compare the Lloyd's 1985 year with companies in 1987 - "it would seem to be entirely flawed because in the 85 underwriting year Lloyd's was driven by factors in calendar year 85."

As to "recruit to dilute" Mr. Sturge said that up to 1985 he did not believe there was any "recruit to dilute". He was less happy about what happened in 1986 and 1987. He felt the Council of Lloyd's should have put some check on the growth of capacity - "the wrong people were becoming members of Lloyd's, those who did not really have any real wealth".

When asked about charts prepared for the purposes of the Outhwaite trial, Mr. Sturge said what struck him was the steep rise between 1982 and 1983 - "if you had looked at them I think you would have scratched your head and wondered what was happening, particularly on those that had written an aggressive long-tail account."

Mr. Sturge said that having been a member of the Open Years Panel, it did not appear that Lloyd's had ever attempted to assess the Lloyd's market's share of asbestos-related claims. Mr. Sturge added that with appropriate data it would be perfectly possible to calculate the exposure that Lloyd's/the London market might have to a particular type of risk.

Mr. Sturge produced Charts of Asbestos Liabilities at 31.12.94, to which I refer.

Mr. Sturge estimated that the cost to the Lloyd's market to date (paid and outstanding) of asbestos-related claims at $3.5 to 4 billion.

Mr. Fredjohn, a distinguished industrialist, was a member of the Council of Lloyd's for the years 1983 and 1984, as one of the first external Names on the Council. Between 1986 and 1994 Mr. Fredjohn was a non-executive director of London Wall Holdings Plc (a Lloyd's Agency). Mr. Fredjohn joined the 1992 Outhwaite Names Association.

Mr. Fredjohn struck me as witness whose account was balanced and generally reliable.

Mr. Fredjohn said that the most important decision that a person makes when he/she joins Lloyd's is who he/she selects as members' agent.

Mr. Fredjohn said that in his opinion it was not the Council's job to try and second guess the work carried out by managing agents and auditors. The Council set the regulatory framework in which others operated.

Mr. Fredjohn said he did not have any special knowledge of asbestos or long-tail problems by reason of being a member of the Council of Lloyd's. He was unaware of the existence of the AWP during his time on the Council. He was also unaware of the state of knowledge of the size of claims lodged in the United States and of the rate at which claims were coming through. He did not remember any report being made as to the numbers or average cost of asbestos claims, while he was a member of Council or of any Lloyd's Committee. In his statement he said he did not know why the Council was not given the information in 1983 that was available to the Committee in 1982. He added that if he had known that information he would not have increased his underwriting as he did and would have avoided long-tail liabilities.

Mr. Fredjohn acted as a Chairman of Rota Committees for members joining Lloyd's when a member of the Council, and for about two years thereafter. He said he had a limited knowledge of long-tail liabilities affecting the market but, along with Sir Eddie Kulukundis, felt it important to emphasise to joining Names that syndicates and Names inherited liabilities for old years. He thought it was very (and increasingly) appropriate to mention long-tail liabilities such as latent diseases, but doubted whether working Names (who took most of the Rotas) were as conscientious. At some stage Mr. Merrett approached him to suggest that at the Rota Meetings he over emphasised the liabilities inherited from the past through RITC - Mr. Merrett "felt I was stressing too much the impact of the long term liabilities, and I said... to me it was one of the most important things... he accepted it."

Mr. Fredjohn was complimentary about certain persons against whom allegations of fraud are made in this case.

Mr. Fredjohn referred to the struggle between regulation and the retention of an entrepreneurial environment that was vital to the success of Lloyd's.

Sir Eddie Kulukindis served as an external (elected) Name on the Council of Lloyd's between 1983 and 1989. He was an impressive witness.

He said that he first saw the Neville Russell letter the day he gave evidence. He believed that he had not seen the Murray Lawrence letter before, but could not be sure. He was a member of the Second Outhwaite Action Group. He had not seen the minutes of the Lloyd's Committee Meeting of 9.12.1982 before the day he gave evidence.

Sir Eddie did not recollect any discussion in Council of asbestosis, in the sense of the number of cases and the cost of those cases.

Sir Eddie said that with 100% hindsight Names should have been advised at Rota not to join the Outhwaite or Merrett syndicates.

Sir Eddie was a member of the Bird Working Party which in October 1984 produced 'The Report of the Long Term Review Working Party on Membership Requirements'. As to this Sir Eddie said (1) there was no question of making it easier for people to become a member of Lloyd's; (2) in a number of respects the recommendations tightened matters, in particular the proposal that members should be brought into line; (3) the proposal that premium income should be looked at on a gross rather than a net basis represented a further tightening of security; (4) there was no hint from anyone on the Committee that it was necessary to recruit new Names in order to meet the losses of the past; (5) the recommendations of the Committee were not aimed at making it easier for people to join Lloyd's.

Sir Eddie was also a member of the Membership Committee. He said that he was satisfied that any Brochure with which he was concerned was accurate and that considerable care was taken in this connection.

Sir Eddie said that asbestosis was not generally regarded in the 1980s as a problem that was going to destroy the Lloyd's market.

Sir Eddie said that if he had been aware in late 1984 of what Mr. Kellett was saying to the Inland Revenue on behalf of Lloyd's, this would have affected his own personal underwriting.

Mrs. Ridley-Day is married to Mr. John Ridley-Day (see below). Mrs. Ridley-Day was not a member of Lloyd's. Her husband was a Name who accepted the R&R Settlement.

Mrs. Ridley-Day produced typed up notes of numerous telephone conversations that she had with Mr. Osbrey.

Mrs. Ridley-Day was recalled to give evidence. Profoundly unsatisfactory matters emerged as a result of further cross-examination on day 27. When Mrs. Ridley-Day first gave evidence she did not mention that on about 16 February 2000 she collected a box of Mr. Osbrey's papers from Dr. Harvey White. According to Mrs. Ridley-Day, Mr. Freeman of Grower Freeman and Goldberg asked her to look through the documents to see "If there was anything useful". None of this material was disclosed to Lloyd's until day 27. In fact the box contained a number of documents highly material to the account that Mrs. Mackenzie-Smith and Mrs. Ridley-Day and other witnesses gave of conversations with Mr. Osbrey.

Further, Mrs. Ridley-Day said that in about the latter part of 1999 a tape, purporting to be a tape of recordings on Mr. Osbrey's answerphone, arrived by post in a brown envelope addressed to her. She said that she came across the tape in the early part of this year before she received the documents from Dr. Harvey White. Freshfields were notified of the existence of the tape by letter dated 10 February 2000.

Mr. Lloyd's witness statement was admitted in evidence (Lloyd's not having any cross-examination). Mr. Lloyd's statement contained an account of conversations with Mr. Osbrey.

The witness statement of Earl Alexander of Tunis was admitted in evidence (Lloyd's not having any cross-examination). This statement also contained an account of conversations with Mr. Osbrey.

Mr. Ridley-Day's witness statement was admitted in evidence (Lloyd's not having any cross-examination). Mr. Ridley-Day's statement contained an account of conversations with and other matters relating to Mr. Osbrey.

Mr. Purle's witness statement dealt with his knowledge of Mr. John Osbrey. Before Mr. Osbrey's death, Mr. Purle was acting for Mr. Osbrey in connection with litigation against Mr. Osbrey's Lloyd's members' agents.

Mr. Harvey White is a surgeon specialising in general surgery and oncology. Mr. Harvey White and Mr. Osbrey became friends when they attended school together and remained friends throughout school and university and their adult life. In addition Mr. Harvey White treated Mr. Osbrey in a professional capacity over the years until his death.

Mr. Harvey White gave evidence of the circumstances in which he came into possession of some of Mr. Osbrey's papers.

Mr. Harvey White was never a member of Lloyd's. He gave his account of conversations from time to time with Mr. Osbrey on the subject of Lloyd's.

It should be recorded that Mr. Harvey White showed great friendship to Mr. Osbrey throughout his life and paid for his funeral.

Mr. Louw has had experience within the reinsurance market both in underwriting (Mercantile & General Reinsurance Co Ltd between October 1965 and September 1972) and as a broker. He is a Fellow of the Chartered Insurance Institute. He has edited the most recent editions of "The Law and Practice of Reinsurance" by C.E. Golding. Mr. Louw is the managing director of Reinsurance Evaluations Ltd, a reinsurance consultancy specialising in inspections and audits of records, management of discontinued operations, litigation support and executive advice to the reinsurance market. He was called not as an expert witness but as a "technical" witness.

Before this case Mr. Louw had not seen the market reports and attorneys' reports in respect of US asbestos losses.

Mr. Louw was cross-examined by reference to the accounts of Mercantile & General Reinsurance Co Ltd. He agreed that the reserves in the 1980s were inadequate to meet the weight of asbestos-related claims and that it was not until the 1982 report published in 1983 that there was any specific mention of asbestos. He accepted that the Mercantile added to its reserves year by year in order to meet asbestos claims, but those reserves proved inadequate. The size of the reserves for asbestos and pollution claims in 1995 was greater than the entire reserves for the whole of the non-proportional account in some of the 1980s.

Mr. Louw prepared an Appendix which sets out a chronology of various reports, addresses the issue of what was known from the attorneys' reports and AWP meetings, calculates the asbestos liabilities indicated by the reports and shows how these were or were not reflected in the RITC figures in the Lloyd's Global Accounts. Mr. Louw concluded his report as follows:-

Mr. Louw based his calculations upon certain "conservative assumptions" as follows:-

In cross-examination Mr. Louw accepted that the RITC figures in the Lloyd's Global Accounts used in his calculations:-

Lloyd's produced a schedule of Mr. Louw's calculations. In cross-examination Mr. Louw accepted that revisions should be made to his figures for the number of claims in 1985 and 1987.

Mr. Louw's percentage approach was challenged in cross-examination. It did not take account of the widening number of defendants in asbestos-related claims. Nor did it take account of the Johns Manville settlement.

Despite certain criticisms that can be made of Mr. Louw's approach and calculations, in fairness to him I should record that in my opinion he was doing his best to assist the court drawing on the limited information available to him.

Each of the witnesses called by Lloyd's from among the 33 persons listed in chapter 7, emphatically denied the allegations of fraud/fraudulent misrepresentation made by the Names.

Sir Peter Miller joined Thos R. Miller & Sons full time from 1954. T.R.M. & S was a Lloyd's broking firm concerned mainly with marine business. In the 1960s with others Sir Peter founded a members' underwriting agency business (Thos R. Miller & Sons Underwriting Agents). He was never particularly concerned with the day to day work of this members' agent. Thus Sir Peter's background was as a marine broker.

Sir Peter was Chairman of the Committee of Lloyd's Insurance Brokers Association for 1976/1977. He was first elected as a member of the Committee of Lloyd's in 1977 and, with the exception of 1981, remained on the Committee until 1989. He was a member of the Council of Lloyd's from 1983 until 1989, during which time he served as Chairman of Lloyd's between 1984 and 1987.

Sir Peter was an articulate witness.

In his main witness statement Sir Peter addressed the following topics:-

(a) a description of relevant Lloyd's bodies and Lloyd's market bodies; (b) the key issues during his Chairmanship of Lloyd's; (c) the principal regulatory developments during the Relevant Period; (d) his personal knowledge of the asbestos issue during the Relevant Period; (e) Lloyd's Annual Results; (f) the Lloyd's Brochures; (g) Rota interviews; (h) capital expansion and the increase in membership; (i) Lloyd's dealings with the Inland Revenue; (j) Toplis & Harding Inc.; (k) his personal participation as a Name.

As to the role of the Council, Sir Peter said that it was not the role of the Council, nor the role of the Committee before it, to get involved in the business decisions of the syndicates and the market, whether in terms of the underwriting of risks or the settlement of claims.

As to the asbestos issue during the Relevant Period, Sir Peter's background was in marine insurance. Although he sat on the board of T.R.M. & S' non-marine broking subsidiary, it was not involved in the processing of asbestos-related claims on behalf of assureds or reassureds. T.R.M. & S did not own or have any interest in a Lloyd's managing agency and Sir Peter had little involvement in the day to day work of the Lloyd's members' agency. He had no recollection of ever seeing any attorneys' reports dealing with asbestos-related claims at any time relevant to this action. Sir Peter referred to his various statements in the Global Reports and Accounts and said that his concern was about losses across the non-marine general liability account as a whole.

Sir Peter said that his knowledge of asbestos has never been detailed, and it is not so even today. (Surprisingly) he said that he was not aware of the fact that serious conditions, on the whole, do not arise until 20 years or more after initial exposure.

Sir Peter accepted that from the time when syndicates received and acted upon the Murray Lawrence letter, they could have been asked what reserves had been identified for asbestos-related liabilities in closed and open years.

Sir Peter said that during the parliamentary procedures in 1982 there was no reason to mention asbestosis or latent disease to the House of Commons.

Sir Peter was asked "Did you during your first year as Chairman ask for figures about asbestosis claims?" He replied "...I observed what was said about them, which was in increasingly significant tones, but I was not aware of any figures being available to me of market participation in asbestos claims. It was too early for that to have emerged."

In the course of his evidence Sir Peter drew a distinction between problems which were considered to be superable and those which were considered to be insuperable.

Sir Peter said that three factors in combination led Lloyd's to the very difficult economic position in which it found itself in the 1990s:- (i) the general liability account; (ii) losses arising from catastrophes; and (iii) intense competition driving down the rates in the marine field to unrealistic levels.

At the conclusion of his cross-examination Sir Peter said "We turned our backs on nothing; we did our best. We may have made mistakes; no doubt we did, everybody does, but the regulatory failures were not what led to the asbestos problem. The asbestos problem, by itself, did not threaten the solvency of Lloyd's. ...It was the combination of that and other things that led to the economic difficulties of the 90s."

Mr. Lawrence took over as active underwriter on composite syndicate 360 on 1 January 1970. Mr. Lawrence's day to day work with syndicate 854 consisted of contract property reinsurance, excess of loss and pro rata insurance of insurance companies worldwide (the greater part being US insurance companies).

On 1 January 1980, syndicate 360 was split into four individual syndicates. The non-marine syndicates, 360 and 854 joined together to form syndicate 362. Mr. Lawrence was the active underwriter of syndicate 362. After he became Chairman of the Computer Leasing Working Party and joined the Committee of Lloyd's in 1979 his involvement in the day-to-day affairs of syndicate 362 diminished and he gradually ceded control of operations to his deputy, Mr. Richard Keeling.

C. T. Bowring divested itself of the managing agency C.T. Bowring Underwriting Agencies Ltd on 1 January 1985. Mr. Lawrence set up Murray Lawrence and Partners which took over the managing agency functions (i.e. the underwriting) of C.T. Bowring Agencies. He was senior partner of Murray Lawrence and Partners, head of the agency and Chairman of the Board having given up his role as active underwriter on about 1 July 1984. Murray Lawrence and Partners was incorporated in 1989 to become Murray Lawrence and Partners Ltd. At the same time, two other companies were formed: a holding company, Murray Lawrence Holdings Ltd, and Murray Lawrence Members' Agency Ltd which purchased the members' agency from C.T. Bowring in 1988 or 1989. Mr. Lawrence was Chairman of all three Boards.

Mr. Lawrence was Chairman of LUNMA in 1978.

Mr. Lawrence became a member of the Committee of Lloyd's in 1979 and except for 1983 served on the Committee until 1991. He became a member of the Council of Lloyd's on 1 January 1984 and remained a member of the Council until 1991. He was Deputy Chairman of Lloyd's in 1982 and from 1984 to 1987. In 1988 he became Chairman of Lloyd's, retiring on 31 December 1990.

Mr. Lawrence joined Lloyd's as an underwriting member for the 1974 year of account. He remained a Name until 31 December 1998.

I am satisfied that Mr. Lawrence's evidence as to the distribution of the Murray Lawrence letter is accurate. I find that he did not take any steps to restrict circulation of the letter.

In his main witness statement Mr. Lawrence addressed the following topics:-

(a) the market associations in the Lloyd's market; (b) the Society of Lloyd's bodies; (c) the Computer Leasing Working Party; (d) the Asbestos Working Party; (e) the Lloyd's Brochure; (f) Lloyd's annual underwriting results; (g) the reinsurance to close process; (h) to (p) the periods up to the closure of the 1977 to 1985 years of account; (q) the recruitment of Names into the Lloyd's market; (r) the purchase by syndicate 362 of a run-off policy; (s) his personal underwriting.

Mr. Lawrence dealt with the meeting with the panel auditors on 10 November 1981, the Audit Committee, the Special Meeting of the Committee of Lloyd's on 7 December 1981, the meeting of panel auditors on 15 January 1982, the note from Mr. Ken Randall dated 22 February 1982, the Neville Russell letter dated 24 February 1982, the Audit Committee meeting on 2 March 1982, the panel auditors' meeting on 9 March 1982, the memorandum by Mr. Nelson on 12 March 1982, the memorandum to O Group dated 15 March 1982, the letter from Mr. Colin Murray dated 15 March 1982 ( the Bannockburn letter), the meeting of the Committee on 17 March 1982 and the two market letters dated 18 March 1982. "The first letter was sent out in my name on behalf of the Committee to all underwriting agents (which meant all managing agents, members' agents and combined agents), active underwriters and panel auditors. The second letter was sent by Mr. Randall to all panel auditors."

Syndicate 362 took out a rollover policy in about 1970 or 1971.

At the end of 1968 Mr. Lawrence was appointed underwriter designate of syndicate 360. He was horrified to learn that the syndicate was under-reserved and would have to increase its reserves considerably (which the syndicate did at 31 December 1968). As a consequence he decided to take the syndicate totally out of casualty business. "We wrote no more long-tail business (direct or reinsurance) during the 1970s and early 1980s (with the exception of certain types of US long-tail business which was not exposed to asbestos, such as medical malpractice and contingency clash business)".

In 1982, syndicate 362 placed an unlimited liability run-off policy. Two thirds of the policy were placed with Mr. Outhwaite's syndicate and one third was placed with Mr. Meacock's syndicate. Syndicate 362 paid a premium of US$2 million for the policy with an excess of US$55 million. The policy was in respect of losses arising from 1 January 1982 on the 1978 and all prior years of account.

On 15 April 1982 the syndicate purchased a further policy from Munich Re which provided US$10 million cover in excess of US$31.6 million for 1978 and prior years of account, at a premium of US$4 million. In 1984 reinsurance was purchased by Mr. Keeling to cover the gap of some US$13.4 million between the syndicate's reserves and the Munich Re reinsurance and the Outhwaite/Meacock run-off. This further cover cost US$4 million for US$13.4 million of cover. At around this time, the cover for the layer between US$31.6 and US$42 million was renegotiated and novated to NERCO.

Mr. Lawrence said that the Council, as with the Committee, did not seek to interfere in the day to day decisions taken by the entities operating in the Lloyd's market.

Mr. Lawrence favoured the division of the non-marine "All Other" category to try to reflect the different settlement patterns (i.e. the different lengths of "tail") of the business within it to produce more consistent statistics. He set out in his witness statement the steps taken to achieve this goal. Mr. Lawrence said that he knew Mr. Bradley but had no recollection of any conversation in 1979 (when Mr. Bradley allegedly reported to Mr. Murray Lawrence a conversation he had had with Mr. Tom Hitchcock of Citibank).

Mr. Lawrence explained the history of the "white papers".

Mr. Lawrence disputed Mr. Osbrey's allegations.

As to reserving for asbestos-related claims Mr. Lawrence said that with the benefit of hindsight "We can look back and say that reserves that we set up at any moment in time proved generally insufficient, but...at the time the reserves...were set up... conscientiously with every effort to see that they were fair, and reinsurance to close...only took place if the underwriter, the agent and the auditor were happy (that the reserves were fair)". Mr. Lawrence added "Just as (we) thought we had a hold on it some new wave of problems came up, and proved all the previous ways in which we looked at it insufficient...we got overtaken by events in future years, in ways which we couldn't have foreseen".

Mr. Lawrence said that asbestos on its own was never a threat to the solvency of Lloyd's. Late in the 1980s and at the beginning of the 1990s the coming together of (i) the asbestos problems (ii) the other long-tail problems including pollution (iii) the effects of the appalling number and severity of the catastrophe losses, cumulatively threatened the solvency of Lloyd's.

Mr. Lawrence did not believe that the Committee was in a position to comment on how the market was reserved unless a mini R&R had been taken on by the Committee, and that was totally impractical.

Sir David Rowland was Chairman of Lloyd's from 1993 to 1997, and a member of the Council of Lloyd's from 1987 to 1990 and 1993 to 1997.

Sir David was first employed in 1956 by a firm of insurance brokers, Matthews Wrightson. Within this broking company, Sir David undertook training as a marine broker between 1956 and 1958, followed by three years experience in UK non-marine insurance, and then another three years specialising in credit and bond insurance. At the end of 1964, he was appointed to the Board of Matthews Wrightson. After joining the Board, he led the UK non-marine department in London. Increasingly he concentrated on the management of the company, its expansion, the acquisition of other businesses and, in particular, upon developing overseas business opportunities. A large part of his time concerned business outside the Lloyd's market. He was made Managing Director of the company around the end of the 1960s.

At about the end of the 1960s Sir David was appointed to the Board of the parent company of Matthews Wrightson. There then followed a corporate re-structuring of the Matthews Wrightson Group, following the acquisition of Bray Gibb (a firm of brokers) in 1970, the flotation of Matthews Wrightson on the Stock Exchange, and the subsequent merger with Stewart Smith & Co (another broking firm with a subsidiary underwriting agency) in 1972. This resulted in the Group being renamed Stewart Wrightson, with a parent holding company called Stewart Wrightson Holdings Plc. From about the time of this re-structuring, Sir David became the (joint) Chief Executive of Stewart Wrightson, joining the Board of the parent company. Subsequently he also joined the Board of the newly created intermediate parent company, which was called Matthews Wrightson Underwriting Ltd. Sir David emphasised that non-executive directors were introduced onto the Board of the intermediate parent company (including Sir Bernard Cohen who Sir David described as a representative of the Names). Below Matthews Wrightson Underwriting Ltd there were a number of companies dealing with the affairs of Lloyd's members and syndicate management. The principal companies were: (a) Pulbrook Underwriting Management Ltd, the managing agency for Pulbrook syndicates (including non-marine syndicate 90 and marine syndicate 334, as well as a motor and an aviation syndicate); and (b) Matthews Wrightson Pulbrook Ltd, the members' agency (which later changed its name to Stewart Wrightson Members' Agency in April 1985). The managing agency and the members' agency had been separated in about 1979 (at the same time that Matthews Wrightson Underwriting Ltd was created). Sir David was not on the Board of either of these subsidiary companies, except for a year or so in about 1978/1979, when he was on the Board of Matthews Wrightson Pulbrook Ltd. Syndicate 90's 1982 year was left open; syndicate 334's 1985 year was left open.

In 1980 Sir David was appointed Chairman of the overall parent company Stewart Wrightson Holdings Plc. He continued in that position until its acquisition by Willis Faber in 1987. When that acquisition took place, he joined the Board of Willis Faber, as a Deputy Chairman. In March 1988, he left Willis Faber to become Chief Executive of the Sedgwick Group Plc. He became the Chairman of Sedgwicks in 1989. He held this position until December 1992, when he became Chairman of Lloyd's.

The underwriting business within the Stewart Wrightson Group was only a small part of the Group's overall business activities. To comply with the divestment requirements imposed by Lloyd's, the managing agency, Pulbrook, was sold and transferred in January 1985 to Creechurch Syndicate Managers Ltd, a wholly owned subsidiary of Merrett Holdings Plc.

Sir David was asked to lead the Task Force investigating the future capital structure of Lloyd's, which was set-up at the end of 1990, and which produced a report entitled "Lloyd's: A Route Forward" in January 1992.

Sir David was a highly articulate witness.

In his first witness statement Sir David addressed the following:-

(a) personal background; (b) response to the allegations; (c) specific allegations against Lloyd's; (d) allegations against Pulbrook syndicate 90; and (e) personal underwriting.

As to (d), syndicate 90 obtained cover of $13.5m (excess of $17.5m), for its 1974 and prior years, in December 1980 with the New English Reinsurance Company; the syndicate then obtained 70% unlimited cover (excess of $26.9m) with Outhwaite/Meacock in February 1982 for its 1974 and prior years. Thereafter the syndicate obtained slices of top-up cover for the 30% gap on the 1974 and prior years. Syndicate 334 obtained cover with First State Insurance Company in May 1981 in respect of its 1975 and prior years, covering US$8m excess of US$4m. The syndicate then obtained unlimited cover with Merrett 418/417 (excess of $12m) for its 1975 and prior years in September 1981. The outcome of the Outhwaite/Meacock run-off contracts is shown in Table 3 below. The Merrett run-off contract was avoided.

In his third witness statement Sir David addressed three further topics:- (f) E&O cover at Lloyd's; (g) training for underwriters and underwriting agents; and (h) developments in relation to the capital structure.

As to asbestos-related claims, Sir David said that there were widely differing views about the eventual outcome and that this was demonstrated by the fact there was an active market in writing run-off policies (Outhwaite, Merrett and Meacock).

When asked about his views in the early 1980s about the availability of the market in run-off contracts, Sir David said "Outhwaite (and Merrett)...were substantial market figures. They had very considerable followings and they took views which were not necessarily typical of the rest of the market and they had considerable charismatic impact on the market. ...I was delighted and much relieved (that these protections were available and) pleased that people were taking different views about the development of asbestos. ...There were large numbers of contrary views, and that people of that influence were prepared to put their money where their feelings lay seemed to me very significant."

In the Task Force Report, January 1992 reference was made to uncertainty as to pollution claims ("The greatest uncertainties surround the third area of latent liability claims, environmental pollution... in testimony to the US Congress Sub-Committee on Policy Research and Insurance, Amy S. Bouska of Tillinghast estimated the range of possible outcomes to lie between $40 billion and $1,000 billion. Clearly costs of this magnitude are far beyond the resources of the insurance industry... Assessing the range of Lloyd's possible exposure to pollution claims is subject to huge uncertainties. Should court decisions go against the industry as a whole, Lloyd's needs to have only a modest share of the problem for it to face very serious losses..."). Sir David cited pollution as an example where "the forebodings about the worst case scenario have not been borne out."

As to E&O cover, Sir David said that this covered 12 months at a time and was on a "claims made basis". It was possible that external Names were underwriting the E&O insurance of their own agent. "One of the very big problems (was) the recycling of the risk around the very people (the Names) who were involved in seeking to recover (in the Lloyd's litigation) from their agents." Thus E&O cover was provided within the very market it was intended to protect. The same was true for personal stop-loss. "It was this whole element of recycling and double counting which caused a great deal of (the) problems."

Sir David accepted that competence in areas of the Lloyd's market was seriously lacking in the 1980s. "The level of ability at Lloyd's (was not, during the Relevant Period) at the level I would wish, looking backwards." Sir David added that there was a great deal of variability in the quality of members' agents.

When asked "Does it cause you anxiety that it was not until sometime in or after 1987 that reference to the possibility of being stuck on an open year was introduced into the Rota verification procedures?" Sir David replied "There is much in that period which, looking backwards, I would like to (have seen) happen earlier."

Between 1 March 1986 and 30 June 1992 Mr. Lord was Chief Executive of Lloyd's and the nominated Deputy Chairman. Prior to March 1986 Mr. Lord had a distinguished career with the Inland Revenue, the Treasury, the Department of Trade and Industry, Dunlop Holdings Plc and as a member of the Court of the Bank of England.

No allegation of fraud is made against Mr. Lord.

Mr. Lord was an impressive witness.

In his witness statement Mr. Lord addressed the following topics:-

(a) the duties and functions of the Chief Executive, Chairman and Deputy Chairmen; (b) the Council of Lloyd's and the Committee of Lloyd's; (c) principal issues facing Lloyd's; (d) knowledge of asbestos; (e) the Donner Inquiry; (f) Global Reports & Accounts; (g) recruitment and expansion; (h) Rota Committee meetings; (i) Toplis & Harding Inc; (j) fraud allegations.

Mr. Lord said that during his term as Chief Executive, his areas of responsibility fell into five groups, the second of which was responsibility for overseeing the establishment and maintenance of the self-regulatory regime at Lloyd's. "In this respect, I was particularly concerned with the interests of non-working Names so far as these were consistent with the successful operation of the Lloyd's insurance market."

As to Council or Committee debate, Mr. Lord said that he could not recall any Council or Committee member seeking to stifle or suppress discussion of any issue either prior to, or at, a Council or Committee meeting.

Mr. Lord referred to the many and varied issues being dealt with by the Chairs, the Council and the Committee. He did not recall asbestos being a significant topic during the period 1 March 1986 to 31 December 1988. It was merely one of a number of long-tail liabilities like pollution, and problems like US tort law reform, which were of concern to the market.

As to the fraud allegations, Mr. Lord said that at no time was he aware of, nor did he have any reason to believe that there was, any dishonest activity on the part of any of his Council and Committee colleagues. He believed his fellow Council and Committee members acted honestly and approached their responsibilities in the same way as he did. If he had been aware of any dishonest activities he would certainly have done something about them.

Mr. Lord defined a catastrophe as something with a cost of at least $1 billion. He said that half the insurance catastrophes in the twentieth century occurred in the years 1987 to 1990 - windstorms in north Europe, Piper Alpha, Exxon Valdez, various hurricanes etc.

As to recruitment, Mr. Lord said that he was not conscious of a recruitment drive. On average there were over three thousand applications for membership each year. There was a queue and the limiting factor was the availability of places on syndicates.

Mr. Lord accepted that there was a tension between addressing liabilities with a very long-tail and the structure of a 12 month venture under which it was hoped to draw a final line at the end of three years. "The one thing that you can guarantee about reinsurance to close is that it will not be right, but it must be right to the best of the underwriter's ability. When you start to find that you have liabilities which are 30 years old, which may... have been imposed on you by a foreign legal system which extends cover beyond the point which it was intended to cover...then it is very difficult to accommodate that kind of business within an annual venture."

Mr. Lord said that one sees now with hindsight that sections of the market were seriously under-reserved, but there was no sense of that at the time. As to reserving for asbestos-related claims, Mr Lord said that in the Lloyd's context the question is, are the syndicates with exposure to asbestosis aware of the situation and are they taking steps to deal with it properly? He added that in a Lloyd's context one would say to individual underwriters and auditors "Are you sure in the light of the available evidence that you are properly reserved, because its your business not mine." In his view that was what Mr. Murray Lawrence did.

Mr. Lord said that there is no doubt that information could have been assembled in an aggregate form. "One would then have had...the ability to say to the underwriters, 'Are you aware of this? Are you clear that in your reserving you have taken full account of the situation which this reflects?'. My problem is this: that if the underwriter had said, 'Yes I am, and I have done my triangulations with this in mind, and to the best of my ability my reinsurance to close reflects all this and my auditors have taken no exception to anything that I have done', then I think that in the Lloyd's system at that point one comes to an end." Mr. Lord added that the General Review Department would not have had the technical insurance expertise to re-work an underwriter's reinsurance to close. "One could only have done that by putting in a team of competing underwriters...to go through the numbers. That actually is what qualified Lloyd's auditors are supposed to do."

Mr. Lord pointed out that with about four hundred syndicates, to some extent in competition with each other, commercial information was particularly sensitive.

As to PCW, Mr. Lord said " For eight months we dealt with this matter with the greatest possible care" (with the assistance of Mr. Nigel Holland and Mr. Charles Skey) "and two years later it became quite clear that we got it wrong."

When asked "The one thing that we are looking at is whether people in senior positions with knowledge of the market knew (what you didn't)... that the market was under-reserved for asbestosis. Its as simple as that, isn't it?", Mr. Lord replied "Yes it is. It comes down to a question of whether the Globals...were written in good faith. Its my belief that they were".

Mr. Murray was appointed active underwriter of non-marine syndicate 510/511 in 1974 and remained underwriter until 1985. He succeeded Mr. Kiln as Chairman of R.J. Kiln & Co Ltd in 1985 and remained Chairman until 1995. He was a member of the Committee and Council of Lloyd's from 1983 to 1986 and from 1989 to 1992. He was Deputy Chairman of Lloyd's from 1989 to 1990. Mr. Murray was elected to the Committee of LUNMA in about 1979 and resigned in 1984.

A general description of the book of business written by syndicate 510/511 is set out in the Merrett judgment.

Mr. Murray was a highly professional and skilful underwriter and I was assisted by his evidence.

In his witness statement Mr. Murray addressed the following topics:-

(a) background to R.J. Kiln & Co Ltd and the Kiln syndicates; (b) the Lloyd's market - general observations; (c) market bodies; (d) the asbestos problem; (e) reserving and reinsurance to close; (f) closure of the 1979 year of account/Murray Lawrence letter; (g) run-off reinsurance; (h) the Council and Committee of Lloyd's; (i) the Members' Solvency and Security Committee; (j) recruitment/capacity; (k) the Donner inquiry; (l) his personal underwriting.

As to run-off insurance, Mr. Murray said that in the early 1980s Mr. Winchester approached him and asked him if he wanted to purchase a run-off policy from Mr. Outhwaite in respect of syndicate 510/511. He received a quotation from Mr. Outhwaite for unlimited cover excess of US$7.5 million at a net premium of US$850,000. The policy was to be effective from 1 January 1982. The offer was not accepted.

Mr. Murray said that if he had felt that the situation would ultimately be as serious as it turned out to be, he would have behaved differently in relation to the purchase of reinsurance. He added that the insurance industry was as slow or slower than Lloyd's in coming to terms with the ultimate cost of asbestos-related claims. "We were part of the industry, the industry was slow, we were slower than we should have been, and unfortunately our slowness contributed to losses made by many Names."

In his Chairman's Report dated 3 May 1995 Mr. Murray wrote:-

Mr. Murray accepted that with the benefit of hindsight he under-reserved in 1981 and 1982, but said that 510/511 was over-reserved at the time of R&R. Mr. Murray said that Mr. Kiln in his booklet about the first 20 years at R.J. Kiln stated that "I did not get asbestos right, I did not realise how damaging it would be".

As to information to Names, Mr. Murray said he was keen to ensure that Names on the Kiln syndicate were kept informed of the opportunities and problems of the business, including the developing asbestos problem. He did this in two main ways. The first was in his reports (as underwriter) which accompanied the syndicate's annual accounts. The second way in which Names were kept informed was through annual meetings of the Names.

Mr. Murray wrote the "Bannockburn letter" (see chapter 19 below).

Mr. Murray said that he considered that the Conning Report of September 1982 (see Appendix 3) was particularly influential. I attach particular importance to this evidence.

Mr. Murray wrote to Mr. Outhwaite in June 1985. "I informed him that I thought that the acceptance of such aggregate liabilities was a matter of "great materiality" and that his managing agent should have advised Names and members' agents before adopting such an unconventional and hazardous underwriting policy. I said that "the effect of writing a run-off stop loss is that the burdens of the many are carried by the few." I gave notice of the cancellation of our sub-agency agreement and the withdrawal of all our Names from the syndicate with effect from 31 December 1985."

As to asbestos, Mr. Murray said that he gradually became aware that there was "a tiger in the undergrowth". Mr. Murray accepted that there must have been a time or period when asbestosis began to contribute to the threat to the solvency of Lloyd's. He added that if it was suggested to the ruling body, or if the ruling body of its own recognised, that there was a threat to the solvency of Lloyd's, then the ruling body would have taken an interest. Mr. Murray said that between 1988 and 1992 it may have been appreciated that asbestos might affect Lloyd's solvency.

Mr. Murray said the "asbestos and pollution experience...has...communicated to me that the annual venture with the reinsurance to close is almost impossible to apply to long-tail business...this is why I really believe the future of the market is for corporate capital."

When giving evidence Mr. Murray said "My contemporary view...was that although one did one's best at the time to fix the figure (to reinsure to close) which without discounting would pay all claims, the assuming Names did have the cushion of the investment income and the capital gain. Therefore, if one had got it wrong and one needed to increase the figure at the end of the following year, then the Names would (probably) not be financially damaged by having assumed (the) reinsurance to close...by not discounting there was an extra cushion."

As to reinsurance to close, Mr. Murray said that the culture at Lloyd's at the end of the 1970s and the beginning of the 1980s was to close a year by reinsuring it into the next year of account wherever possible, however expensive that might be for Names on a closing year. By the late 1980s, the incidence of open years had increased so much that the concept of leaving a syndicate open was regarded by some underwriters as preferable to closure. In some cases it allowed very severe losses to be collected from the Names over a longer period of time.

As to the Lloyd's market, Mr. Murray said that in his opinion it was no part of Lloyd's function to usurp the role of the agents, working in conjunction with their auditors, in relation to the closure of syndicates' years of account, nor did the Committee/Council of Lloyd's have the information, time or resources to interfere in this area of the agents' businesses. Mr. Murray said that if he had been told that when he joined the Council of Lloyd's he was expected to make an assessment about Lloyd's exposure to asbestosis or pollution or anything else, under no circumstances would he have stood for the Council because he would have known that that was an impossible brief.

In 1973 Mr. Kellett set up his own non-marine syndicate 993/994. B. P. D. Kellett & Co became sole managing agents in about 1981 or 1982. In early 1987 the functions of members' and managing agencies were divided and Kellett (Holdings) Ltd was formed. Mr. Kellett wrote most classes of non-marine business, including leading property facultative and excess of loss treaty business, as well as some LMX. He did not however write US casualty business except to a limited extent. Mr. Kellett resigned as underwriter at the end of 1989.

Mr. Kellett was Chairman of LUNMA in 1987.

Mr. Kellett was a member of the Council and the Committee of Lloyd's between 1990 and 1992.

In his witness statement Mr. Kellett addressed the following topics:-

(a) the business of syndicate 993/994; (b) LUNMA; (c) other issues; (d) his personal underwriting.

Mr. Kellett was a member of the Equitas Reserving Group for the 1992 and prior years. He worked on problems on syndicates in the short-tail catastrophe market.

Mr. Kellett bought a rollover policy for the 1974 account. Premiums were paid out of each of the years of account from 1974 until about 1982. It was used to assist with the computer leasing problem.

In 1974 Mr. Kellett wrote a small number of run-off policies for syndicates whose accounts had included a fairly general US casualty account. The syndicates in question were H. G. Poland syndicates 105, 106 and 109; C. P. Attenborough syndicates 531, 905 and 223; and F. R. Bussell syndicate 870. In June 1977 he obtained reinsurance cover for these run-off policies from Outhwaite syndicate 661. In 1980 Mr. Kellett re-entered the run-off market. He wrote a policy which protected the Bishopsgate Insurance Co. He took about a third, with Mr. Outhwaite and Mr. Drysdale writing the majority of the remaining two thirds between them. The policy protected the Bishopsgate's 1966-7 years in relation to their Drivers casualty account and their 1972-1977 years in relation to Weavers. Additionally in 1981 the Bracey non-marine syndicate 917, which had gone into run-off, was looking for cover to enable it to close-off its account. Mr. Kellett agreed to take a 33% share of an unlimited run-off reinsurance which protected its 1968-1974 underwriting years of account. In April 1982, an opportunity arose to reinsure with Mr. Outhwaite, and Mr. Kellett ceded the risks to Mr. Outhwaite's syndicate, retaining the first £500,000.

Mr. Kellett retroceded his syndicate's computer leasing risks to Mr. Posgate. As to this Mr. Kellett said:-

In 1987 the 1984 year of account of syndicate 993/994 was left open, because of the syndicate's involvement in policies which ran off the liabilities of deceased Names; these policies were picking up losses on the Outhwaite 1982 open year.

In November 1984 Mr. Kellett in company with Mr. Barber, Mr. Merrett, Mr. Holland and Mr. Parkington, made a presentation to the Inland Revenue. In the course of his presentation Mr. Kellett said in response to the Inland Revenue's contention that Lloyd's was over-reserved "...We are under-reserved. What concerns us is, how the industry can survive its under-reserving. ...The reinsurance to close, (will) in most cases continue to be placed with the following year of account... at what the underwriter believes to be its true worth, and what history will more probably show to be too little." These remarks by Mr. Kellett must be seen in the context in which they were made. He said there was a certain amount of hyperbole.

As to LUNMA, Mr. Kellett said that LUNMA was not part of the investigations branch or the regulator. It was a market association concerned to assist the market in doing what they wished to do in the market and facilitating the transaction of business around the world.

In 1970 Mr. Keeling commenced underwriting on syndicate 360 as deputy underwriter. Mr. Murray Lawrence was the active underwriter. Over time he assumed more responsibility for the syndicate's underwriting. Mr. Lawrence became Chairman of the Computer Leasing Working Party at the beginning of 1979; from 1979 he was also a member of the Committee of Lloyd's. These commitments took up a lot of his time and he therefore delegated much of the day to day underwriting responsibility to Mr. Keeling. In 1982 Mr. Lawrence effectively handed over the role of underwriter for syndicate 362 (as syndicate 360 had become) to Mr. Keeling. Mr. Keeling was appointed active underwriter of syndicate 362 in 1984. He continued as the active underwriter of the syndicate until the end of 1996.

Mr. Keeling was Deputy Chairman of Lloyd's in 1993 and 1994. He was Chairman of the Reserve Group established by Lloyd's for the purpose of the Equitas reserving exercise. At the conclusion of R&R he was awarded the Lloyd's Silver Medal.

Mr. Keeling struck me as a particularly astute underwriter.

Mr. Keeling addressed the following topics in his witness statement:-

(a) a description of syndicate 362; (b) the asbestos problem; (c) run-off reinsurance; (d) additional reinsurance protection; (e) disclosure to Names; (f) RITC process; (g) disputes with Outhwaite and Meacock; (h) recruitment; (i) his personal underwriting; (j) allegations made against Mr. Murray Lawrence.

I refer above to the run-off policy and other protections purchased by syndicate 362 (under the heading Mr. Lawrence).

As to his syndicate's asbestos reserves, Mr. Keeling said that total reserves for asbestos (including outstandings and IBNR) at 31 December 1981 were approximately US$7 million. This figure had risen to US$44 million by 31 December 1987.

As to certain reports relied on by the Names as to the possible impact of asbestos-related claims, Mr. Keeling said:-

Mr. Archard was a partner in Murray Lawrence and Partners and later Managing Director of both Murray Lawrence and Partners Ltd and the holding company, Murray Lawrence Holdings Ltd. Mr. Archard has always been on the accountancy/management side. Mr. Archard was Chairman of the LUAA Committee in 1992 and held that post until he was appointed to the Lloyd's Regulatory Board in 1993. Between 1996 and 1998 Mr. Archard was a member of the Council of Lloyd's. He was re-elected to the Council in 1999 and is currently a Deputy Chairman of Lloyd's.

Mr. Archard struck me as a careful witness.

In his witness statement Mr. Archard addressed the following topics:-

(a) C.T. Bowring/M.L.P.; (b) the LUAA; (c) recruitment/rota; (d) asbestos knowledge; (e) the RITC process; (f) run-off reinsurance.

Mr. Archard referred to the run-off policy purchased by syndicate 362 ( 2/3rds from the Outhwaite syndicate and 1/3rd from the Meacock syndicate) as a "sleep at night policy". He pointed out that in April 1982 the syndicate purchased a stop loss policy from Munich Re and that in 1984 the syndicate purchased a further stop loss reinsurance policy. These arrangements are described in more detail under the heading Mr. Murray Lawrence.

As to rota Mr. Archard said that rota was not the forum for raising specific claims issues or risks, although the general point about inheriting risks from the past was always made.

In October 1960 Mr. Jackson joined the largest professional reinsurer in the United States, the General Reinsurance Corporation as a trainee casualty facultative underwriter. He worked for General Re for 11 years until June 1971 in their New York office. He underwrote casualty reinsurance (or, liability business as it is known in the UK). In 1971 following a move back to England he started Unionamerica Insurance Co. Ltd for a Los Angeles based financial institution. Mr. Jackson was the Managing Director and was in charge of all underwriting. Unionamerica underwrote most classes of non-marine insurance and reinsurance.

Mr. Jackson joined the Merrett agency in September 1976 to take over from Mr. Leslie Dew as the active underwriter of the non-marine syndicate from 1 January 1977. When Mr. Jackson joined the syndicate in late 1976 it was called syndicate 772. The number was changed to 799 about one year later. Mr. Jackson ceased underwriting on syndicate 799 at the end of the 1988 account, but stayed on at the managing agency for a further two years full time to assist his successors. The 1990 year of syndicate 799 was left open.

Mr. Jackson was Chairman of LUNMA in 1986. He was also a member of the AWP from its inception in 1980 until 1996. From 1984 until 1996 he served as Chairman of the AWP. He was also a Director (and Chairman) of Toplis & Harding (Asbestos Services) Ltd, the service company established by the AWP in 1984 through which the AWP ultimately carried out its administrative functions. The name was later changed to Toplis & Harding (Market Services) Ltd. Mr. Jackson was a Director and Chairman of LMCS from 1990 until October 1998.

From 1994 to 1996 Mr. Jackson worked on the Equitas Project as one of a handful of people making up the Core Group of the Reserving Project. Between 1992 and 1994 Mr. Jackson was the Chairman and Chief Executive of Centrewrite, the first Lloyd's owned operation designed to underwrite (and therefore determine) members' obligations on syndicates in run-off. He was Chairman of and set up the Specialist Claims Unit, established by Lloyd's to handle asbestos, pollution and health hazard claims. This body became the basis for the Equitas Claims Department.

In short, Mr. Jackson has spent nearly forty years handling US liability business in some form or other. Mr. Jackson said that among the underwriting community only Mr. Ayliffe and Mr. Rayment knew as much as he did about asbestos-related claims, adding that they probably knew a bit more.

Mr. Jackson addressed the following topics in his witness statement:-

(a) his career in the insurance industry; (b) his experience of US liability business; (c) asbestos claims and the London Market; (d) the AWP; (e) the Johns Manville settlement; (f) the Wellington Agreement and the Asbestos Claims Facility; (g) DES and other claims; (h) the development of asbestos claims; (i) reinsurance; (j) the Global Accounts; (k) reinsurance to close; (l) expansion of capacity by syndicate 799; (m) disclosure of asbestos by syndicate 799; and (n) his personal underwriting details.

As to asbestos-related claims, Mr. Jackson said that the unique and unprecedented features of the way in which such claims unfolded, was that they did not simply increase in number, peak, then subside, as with nearly all other claims. Instead, the claims reached a steady plateau between about 1982/83 and 1985, then just seemed to increase and increase in waves, facilitated by various inter-related factors. He added "I cannot emphasise enough how the Plaintiff Bar's extraordinary action in connection with asbestos was so fundamental to the development of these claims. ...Everyone recognised the contingency fee, ambulance chasing rationale which drove the Plaintiff Bar; but no one in the industry could have conceived that it would have the profound and grave effect it did."

In his witness statement Mr. Jackson said:-

Mr. Jackson concluded his witness statement as follows:-

Mr. Jackson pointed out that it doesn't follow that policy holders against whom asbestos-related claims were made had adequate insurance policy limits available to pay them. Mr. Jackson said that it was impossible to work out what the net exposure of Lloyd's would be to any particular risk.

As to his testimony given to Senator Nickles and others on 19 March 1985, Mr. Jackson said "I was perhaps over-egging a situation to try and get their attention."

Mr. Rayment was employed at R.W. Sturge from 1969 to May 1990 in their Claims Department. He was involved in the non-marine syndicates at Sturge, primarily syndicate 210. He became Claims Director of syndicate 210 in 1979. (Mr. Rokeby-Johnson was the underwriter of syndicate 210 from about 1974 to about the end of 1987). From 1983 Mr. Rayment was a member of the Asbestos Working Party. He was a member of the Claims Sub-Committee of the AWP from about 1981 onwards. He also sat on the Reinsurance Claims Sub-Committee of the AWP from 1983. In 1984 the AWP set up a service company called Toplis & Harding (Asbestos Services) Ltd. He was a director of this company from the outset. When the company's name was changed to Toplis & Harding (Market Services) Ltd he remained a director. Mr. Rayment was one of the two London Market representatives (the other being Mr. Ayliffe) asked to negotiate with the asbestos producers and their insurers to reach what ultimately became known as the Wellington Agreement. Mr. Rayment assisted with the setting up of the Asbestos Claims Facility which came about as a result of the Wellington Agreement. In October 1988 the ACF ceased operation and the Center for Claims Resolution was formed by certain asbestos producers to provide similar services. Since then Mr. Rayment has been a non-voting member of the Board of the CCR.

Mr. Rayment first wrote business as a Name in 1980. Syndicate 210 left its 1990 year open. This was the last year that Mr. Rayment was a member of the syndicate.

Mr. Rayment, Mr. Jackson and Mr. Ayliffe were probably the three most knowledgeable people in the Lloyd's market as to asbestos-related claims.

Mr. Rayment struck me as a highly conscientious Claims Man who worked tirelessly to assist the market in relation to the handling of asbestos-related and other long-tail claims. I was greatly assisted by his evidence.

In his main witness statement Mr. Rayment addressed the following topics:-

(a) syndicate 210: asbestos-related risks; (b) syndicate 210: the determination of the reinsurance to close premium; (c) an overview of the nature of asbestos-related claims; (d) the work of the AWP; (e) reserving and attorneys' reports; (f) market knowledge of asbestos; (g) reserving by the Lloyd's market generally; (h) the development of asbestos claims; (i) the Wellington Agreement; (j) asbestos property damage; (k) asbestos bodily injury claims compared with asbestos property damage claims, DES and Agent Orange; (l) impact on other insurers.

In his witness statement Mr. Rayment said:-

Syndicate 210 purchased a run-off policy from Kemper Re and Fireman's Fund in 1974. The run-off protected the syndicate's 1969 and prior years of account.

As to Mr. Roger Bradley's alleged conversations with Mr. Rokeby-Johnson in 1973, Mr. Rayment said that Mr. Rokeby-Johnson never expressed any such views to him.

Mr. Rayment said that one thing the AWP did not do was to make any IBNR recommendations. Decisions in respect of IBNR were matters for the individual syndicate or company concerned. Mr. Rayment pointed out that the AWP did not try to calculate a figure representing the total reserve requirement of Lloyd's as a whole in relation to asbestos-related claims, let alone to do so by the method adopted by the Names. "I firmly believe that the only way in which a reserve requirement could, and indeed should, have been worked out, was by each syndicate looking at its own inwards book of business, looking at its own reinsurance protections, working out its own outstanding figures, and forming its own view in the light of all the information available to it, as to what its IBNR estimate should be, and hence arriving at its own decision as to what its reinsurance to close should be."

Mr. Rayment said that the market had coped with Allied Crude, Hurricane Betsy, S.M.O.N. (a problem arising from Japanese people taking too many enteroviaform tablets), Computer Leasing and many other claims. During the 1980s the asbestos problem behaved in a way which was quite unprecedented and became much worse than people in the market had anticipated.

Mr. Rayment provided a helpful chart of the development of asbestos claims (see chapter 16, Table 2 below). He said that:-

Mr. Rayment set out in his witness statement some of the interlinked reasons why things looked so different at the end of the 1980s/early 1990s to the way in which they had looked in the early 1980s. He referred to a number of false dawns in connection with asbestos-related claims.

Mr. Rayment cited Johns Manville Corporation as an example of estimates of potential claims proving to be incorrect. In August 1986 the United States Bankruptcy Court for the Southern District of New York signed an order pursuant to which Johns-Manville undertook an extensive campaign designed to provide the maximum amount of publicity, with respect to the confirmation process of the Plan before the court. The campaign provided for national television and radio advertisements, newspaper advertisements in the six leading US and Canadian newspapers and in the largest circulation daily newspaper in each State, the District of Columbia and each Canadian Province. This publicity campaign was designed to inform as many future asbestos claimants as possible of the impact of the Manville reorganisation, upon whatever rights they might have against Manville as Debtor. I refer to the decision of Judge Lifland dated 18 December 1986 and the subsequent appeals. In his judgment dated 19 January 1995 Senior District Judge Weinstein of the United States District Court E and SD New York said:-

Mrs. Stynes qualified as a Chartered Accountant in 1979. After working for Baker Sutton & Co and Ernst & Whinney Mrs. Stynes joined the Corporation of Lloyd's in February 1984 in the AARD. The AARD was the Secretariat to the AASC and provided administrative support to AASC. Mrs. Stynes was appointed Manager of the AARD towards the end of 1984 and became Secretary to AASC. In October 1987 she moved to the Underwriting Agents Department as Manager. In 1989 she became Manager of the Policy Development and Review Department. Mrs. Stynes left Lloyd's in November 1991. While at Lloyd's she was known by her previous married name, Mrs. Cathy Shorthouse.

In her first witness statement Mrs. Stynes addressed the following matters:- (a) the role and responsibilities of the AASC and the AARD; (b) the Global Reports and Accounts; (c) accounting and audit issues.

Mr. Pollard is the Run-Off Operations Director of Equitas Ltd. Before joining Equitas in 1996, Mr. Pollard worked for the Corporation of Lloyd's for over 40 years. He was the Senior Manager of the Membership Group of Lloyd's between 1977 and 1983. In 1983 Mr. Pollard moved to the Lloyd's Policy Signing Office. In October 1988 Mr. Pollard was appointed Director of Administration of AUA 4 Ltd, a specialist company formed by Lloyd's to administer the run-off of certain syndicates. In 1989 the company changed its name to Syndicate Underwriting Management Ltd and in 1990 Mr. Pollard was appointed its Managing Director. SUM was responsible for the run-off of Lioncover which in 1987 had reinsured the PCW syndicates.

In his witness statement Mr. Pollard addressed the following topics:-

(a) information to applicants; (b) Rota Committee interviews; (c) Brochures; (d) regulation of admission procedure; and (e) growth in membership.

Mr. Tovey worked for the Corporation of Lloyd's between 1984 and 1989, latterly as the Manager of the MSSD.

Mr. Tovey joined Lloyd's in April 1984 as an Assistant Manager in the MSSD. He remained as Assistant Manager to Mr. Tony Parkington until August 1985. He was then seconded to work for Mr. David McWilliam, who was head of the Regulatory Services Group, as successor to Mr. Randall. Mr. Tovey stayed there for no more than a year, and then went back to the MSSD as Manager, succeeding Mr. Parkington. He stayed there until March 1989 when he was offered a job by the Sturge Group.

Mr. Tovey addressed the following topics in his witness statement:-

(a) the organisation of the MSSD; (b) alleged concealment of asbestos problems; (c) the Annual Solvency Test; (d) the work of the MSSC; (e) MPRs; and (f) the Statement of Facts on the Regulatory Background.

In 1982 Mr. Simister was working as Project Manager of the Management Service Group at Lloyd's. He gave evidence of the postal distribution system within Lloyd's in 1982.

Mr. Garner was called to respond to the evidence of Mr. Steel (see above).

Mr. Garner joined the LIBC in 1986. He remained on the LIBC until the end of 1990. He was Deputy Chairman in 1988 and 1989 and Chairman in 1990.

Mr. Garner referred to the comments which Mr. Steel alleged were made by Mr. Lawrence and Mr. Cockell during a LIBC dinner. Mr. Garner did not recall any such remarks being made by Mr. Lawrence or by Mr. Cockell at a dinner at which he was present, or on any other occasion.

Mr. Clark is the Executive Director, Financial Stability, at the Bank of England. He has line responsibility for the Bank's relationship with Lloyd's. He had some involvement in matters relating to Lloyd's in previous posts in the Bank, but not before 1987.

Mr. Clark referred to references in Names' witnesses statements to a letter from the Bank of England to major banks, purporting to have warned banks of risks and losses associated with underwriting at Lloyd's. Further the Bank of England has had a number of enquiries in the last two years from various individuals alluding to the existence of a report (sometimes referred to as the Armageddon Report), or in one or two instances a letter. In response to these approaches Mr. Clark commissioned a number of reviews of the Bank's records in those areas of the Bank where he would have expected any such report or letter to have been prepared. Nothing found gives any indication that such a report was prepared or that such a letter was written. In addition, Mr. Clark has spoken to a number of those who were at the time Directors or senior staff of the Bank and who would have expected to see, or have been involved in the preparation of, a report or letter on this subject. None of them recalls any such report or letter. In addition the issue has been discussed with Lord Richardson, who has no recollection of a report or letter on this subject.

Statements were admitted under CPR Part 33.2 from Mr. Patrick Bird, Mrs. Mary Hitchcock, Mr. Thomas Hitchcock, the Treasury Solicitor, Lord Kingsdown, Mr. Paul Morris, Sir Jeremy Morse, Mr. Ralph Rokeby-Johnson, Mr. Joseph Hodges and Mr. Robert Keville.

Mr. Aaronson is Director of the London office of LECG, which is the economics and policy practice of Navigant Consulting, an international consultancy firm. Mr. Aaronson has been a consulting economist for about 14 years. Prior to joining LECG, he was a partner in the firm of PricewaterhouseCoopers. Before that he was a member of the Government Economic Service, first at H.M. Treasury, and then at the Monopolies & Mergers Commission.

Mr. Aaronson was instructed as an expert to analyse whether there was any economic evidence that the changes in Lloyd's capacity during the Relevant Period, resulted from exposure to asbestos losses, which did not affect the London market as a whole. In his report he said:-

Mr. Aaronson accepted and emphasised the limited contribution he could make to the issues that I have to decide, as reflected in the passage quoted above.

Lloyd's did not call a number of witnesses whose witness statements were exchanged. In reaching the conclusions set out in this judgment I have had regard to the fact that Lloyd's did not call these witnesses and I have considered whether any adverse inferences should be drawn.

16. AN OVERVIEW OF THE NATURE AND DEVELOPMENT OF ASBESTOS-RELATED CLAIMS

Appendix 3 contains a Chronology of certain information relevant to asbestos-related claims for the Relevant Period. The keys (SI = syndicates at interest or interested insurers; SS = syndicate specific; PA = Panel Auditors; AWP = Asbestos Working Party) represent an attempt to identify recipients of a document, but do not constitute a finding that any particular individual or syndicate received or was aware of the document or its content. Although Appendix 3 contains extracts from documents, I have of course had regard to the whole of each of the documents referred to (and all other material before the court). Appendix 2 contains a list of US cases concerning coverage etc for asbestos losses for the Relevant Period.

Introduction

Although there have been a variety of mass toxic tort claims in the United States, none have had or continue to have the profound and lasting impact on the global insurance industry that asbestos-related claims have had.

The first problems perceived in relation to asbestos were in respect of asbestos-related bodily injury claims. The first wave of workers bringing asbestos bodily injury claims tended to be those exposed to asbestos in the 1940's and 1950's, often in the shipbuilding industry. The claims which workers brought against policyholders were then presented to the London market under third party general liability policies extending to cover products liability. The products liability sections of such policies were usually written in the aggregate. When Lloyd's issued these policies it was not anticipated that occupational injury claims, let alone asbestos bodily injury claims, would be covered by these policies. In fact, until asbestos claims, these were policies which had rarely been claimed upon. They had previously been profitable policies to write.

The main diseases alleged by claimants to have been caused by exposure to asbestos were (in order of severity of injury) mesothelioma, lung and other cancers, asbestosis and pleural plaques. A typical asbestos claimant would inhale the airborne asbestos particles usually in his workplace. The majority of asbestos claimants over the years have alleged either asbestosis or pleural diseases both of which are dose-related i.e. dependent upon exposure over a significant period of time. Mesothelioma, and certain other cancers, on the other hand, may be contracted after much shorter doses, perhaps even a single short exposure to asbestos.

In 1964 Dr. Selikoff published the first epidemiological study of insulation workers and asbestos diseases; and since then, studies have appeared in medical journals documenting the relationships between asbestos exposure and disease. According to Mr. Rayment, to the extent that insurers would have had asbestos in mind as a potential claim, that would only have been in respect of occupational disease and employer liability policies.

In 1980 the London market's US attorneys, referred to Dr. Selikoff's prediction of 20,000 asbestos-related deaths per year. There are now something like 60,000 claims a year being made, but it was not until towards the end of the 1980's that the insurance industry began to receive anything approaching 20,000 claims a year in total. The majority of the claims over the years have been in respect of asbestosis and pleural diseases. On the whole (apart from the most severe asbestosis claims), these illnesses have not caused deaths. The claims which are more likely to be linked to deaths are those which are cancer-related. But the claims arising from the severe mesothelioma (which is a cancer claim) have remained fairly constant at around 4%, and cancers overall have accounted for around 10-20% of the claims. In the early 1980's the volume of claims was much lower: around 6,000 a year in the period up to the Wellington Agreement. The number of cancer claims was again only a small percentage of that figure: in the hundreds, not the thousands. The insurance industry has never in fact seen anything like 20,000 cancer-related claims a year.

In the case of asbestos-related claims the exposure which the individual has suffered is not as a purchaser of goods on the open market for his own private use, but rather exposure to the product within, usually, the occupational workplace. The majority of these claims involve people who have been exposed to asbestos fibres in their environment, usually their working environment.

Asbestos-related bodily injury claims arising out of workplace exposures started to develop at a time when the products liability laws in the United States were undergoing change. Originally, these types of claim, to the extent that they were even advised to Lloyd's, came through as workers' compensation claims.

Claimants had to undergo medical examinations before the compensation boards prior to having a claim accepted. Even assuming that a claimant could produce the necessary medical and factual evidence required to qualify for workers compensation, the benefit received by an individual was normally expressed as a percentage of their basic income. In most cases, the top benefit would be two-thirds of their average weekly income. In practice, given that the type of worker who might bring a claim in respect of injury caused by asbestos exposure could usually be classified as a low income earner, even the highest compensation available was, in real terms, modest to a person who was totally disabled or whose life expectancy was severely shortened.

Prior to 1965, if a claimant wanted compensation outside the workers compensation laws, he would have to bring a legal action for bodily injury caused by exposure to asbestos based on theories of negligence or breach of warranty. Until 1965, only the actual purchaser of a product could bring a products liability claim against the producer.

In 1965, the American Law Institute issued the second edition of Restatement of the Law of Torts, which significantly enlarged the categories of persons potentially eligible to bring a products liability claim. The new rule ("Rule 402A") eliminated the "privity of contract" requirement for a products liability claim. Thus, not only the direct purchaser, but also any individual who might foreseeably be injured by a product, could bring products liability claims.

One of the first products liability lawsuits which successfully used "Rule 402A" and involved an asbestos bodily injury claim was Borel vs. Fibreboard et al. The case was filed in 1971 in US District Court, Eastern District of Texas. Clarence Borel's asbestos-related injury was due to workplace exposures to asbestos products. These products were supplied to his employer company by a number of asbestos suppliers or producers, of which one was Fibreboard. The case, having reached the appellate courts in 1973, was the first major US case where the courts found liability on the part of the manufacturers on the basis of products liability.

Following Borel, asbestos claims against producers, in time, became more common. A typical case would involve a group of claimants alleging injury against a number of asbestos products manufacturers. A typical claimant was often a transient worker. These workers would have various skills and would be based at a local union hall. Employers who required people for particular projects would go to the union hall to employ the workers needed. These workers would then be employed for the particular project. On completion of the project, they would return to the union hall and await their next employment. Therefore, a typical claimant, who would work for a number of different employers during the course of his working life, would have been exposed to many different asbestos products at different work-sites or projects. Thus, by naming as many of the asbestos producers as possible, the claimant would increase his likelihood of success at trial. In turn, the producers who were being sued might issue a cross-complaint against other producers so as to reduce their potential liability. Workers' compensation had brought only modest compensation. The Borel ruling meant that there was now a way of obtaining compensation which did not require workers to establish negligence, to avoid the worker's compensation route. However, during the 1970's asbestos-related claims remained relatively few, compared with what was to happen later. Prior to 1980 there were only about 950 asbestos cases filed in the US Federal courts.

The number of filings has continually increased since then, with the most significant increase from the late 1980's and through the 1990's. To date there have been about 450,000 individual claims filed. At the end of 1988, (the end of the Relevant Period), there had only been about 100,000 claims filed. The claims are filed in State and Federal courts in virtually every jurisdiction in the United States.

Manifestation Versus Exposure Debate

Whilst the decision in Borel meant that claimants could bring products liability suits against producers, it did not necessarily follow that the producers' products liability insurance policies provided coverage for these claims. Initially, insurers raised a number of defences against the claims made under these policies.

These defences were:

Prior to asbestos-related claims, it was rare for the London market to become involved in substantial litigation with their policyholders. However, one of the major issues as between the policyholder and its insurers (and indeed amongst the insurers themselves) was the basis on which coverage for asbestos-related claims would be provided; namely, which policies and which insurers would respond to a claim, or what was the "trigger" for coverage.

By the late 1970's, the London market insurers had to consider the basis upon which policies would respond to the 'date of loss' issue. For example, the loss could have occurred at any point during the whole period in which the claimant was exposed to asbestos (the 'exposure' theory); or it could be argued that the loss occurred when the disease resulting from the claimant's asbestos exposure manifested itself or was diagnosed (the 'manifestation' theory).

Bell Asbestos, a Canadian mining company and its primary insurers eventually came to an agreement in 1977 as to the basis on which insurers would respond to the current and future claims. The London market was asked to support the agreement (which adopted an exposure basis) even though, at this stage, the London market had no financial involvement with the claims. This request caused some concern to the market in general. A number of underwriters did not consider the exposure theory allocation to be valid under the terms of the policy. Nevertheless, as a result of the negotiations that took place between Bell and the London market, the London insurers decided to accept the agreement, albeit on a without prejudice basis. (The London market did not pay any losses under policies in respect of Bell until the early 1990's).

Notwithstanding the Bell agreement, it was not until the Eagle Picher and, more importantly the GAF declaratory actions which were filed in 1978 and 1979 respectively, that a large part of the London market became familiar with the manifestation versus exposure debate. Accordingly, it was not until around 1979 that the London market really had to address and take a position in that debate.

Proponents of the exposure theory, which in 1979 included most policyholders and some members of the insurance industry, argued that each injurious inhalation of asbestos fibre causes injury. Accordingly, it was argued, each insurer who provided coverage during the period of time that the claimant was exposed to asbestos fibres should pay a proportion of the damages. Supporters of this theory were able to point to the Borel case, as well as to expert medical testimony that confirmed the progressive nature of asbestos-related diseases.

Those who, on the other hand, supported the manifestation theory, argued that bodily injury did not occur until the continuous and progressive injury process had overcome the body's natural defences and the individual evidenced some symptoms of an asbestos-related disease or some form of dysfunction. Therefore, the date when the claimant became aware of an asbestos-related disease, or the date when the disease was diagnosed (whichever occurred first), was the controlling date for determining which insurance policy should respond.

By the end of 1979, six declaratory actions had been filed. This coverage litigation caused much concern in the insurance markets in both the US and London, not least because of the legal costs involved.

The London market and, in particular, claims men were troubled about the market split in respect of coverage which was apparent in the responses to the increased number of declaratory actions. The fact that the market was split in terms of coverage meant that there was not a co-ordinated response from those involved; on the contrary, the uncertainty over the application of insurance policies lent itself to an inconsistent and impractical approach to the handling of asbestos-related claims within the London market.

The Work of the AWP

I have already referred briefly to the AWP in chapter 10. The AWP's principal aim was to gather information and get it to the market as soon as possible. There was no question of the AWP concealing information nor of downplaying its importance or significance.

There were a number of factors which combined to provide the impetus for the formation of a market body, the AWP, to provide co-ordination and consistency in the handling of asbestos claims by the London market. One of the factors was the manifestation versus exposure argument.

The AWP was established in August 1980. Initially its membership comprised five leading underwriters and four claims personnel from the Lloyd's and Company markets, whose organisations all had interests in US casualty business. Mr. Robin Jackson, Mr. Rokeby-Johnson, Mr. Charles Skey, Mr. Don Tayler and Mr. Ted Nelson (the first chairman) sat on the AWP. The claims sub-committee of the AWP was initially made up of Mr. Philip Froude, Mr. Leslie Kemp, Mr. John Heath and Mr. Jim Ayliffe. Mr. John Heath was the claims manager for H.S.Weavers and represented the Company market from the outset. This claims committee was the driving force behind AWP activities.

For the first two years of operation, the AWP's claims committee, dealt primarily with direct insurance matters only. Later, the AWP created a reinsurance claims committee to deal with the increasing number of reinsurance claims being advised (the original claims committee then became known as the direct claims committee). Mr. Rayment was a member of both. The members of both AWP claims committees were drawn from the senior claims managers of leading Lloyd's and Company market insurers; they were very often leaders of policies written in the London market. These leaders had day-to-day involvement in handling asbestos claims for the accounts which they led. In addition to the claims committees of the AWP, when notifications were received in respect of claims presented against policyholders, specific working claims committees were set up to deal with the policies at issue in respect of each policyholder. As these 'working' or 'ad hoc' claims committees were established for the purpose of claims processing, negotiating and if needs be, providing support in asbestos claims litigation, the leading underwriters on the policies would be invited to serve on the committees on an ad hoc basis, for the purpose of dealing with the claims in question, irrespective of whether they were on the AWP or one of its formal committees. This meant that claims were handled in accordance with the usual market practice (that is by the leaders of the policies in conjunction with their attorneys), with the added assistance provided by members of the appropriate (i.e. direct or reinsurance) AWP claims committee.

The AWP claims committees met on a much more frequent basis than the full AWP in order to discuss individual claims, evaluate the overall claim trends in the United States and consider general issues. Claims committee members were aware of the developments in the United States law relating to both coverage issues and claims handling issues. This knowledge was acquired not only through membership of the AWP claims committees but as a result of hands on experience of day-to-day syndicate matters.

Participation in the AWP was sought from all sectors of the London market and the working party grew. There were representatives from marine and non-marine syndicates; from the Company market including a representative from the Institute of London Underwriters and from the Reinsurers' Offices Association. Although these representatives did not have authority to represent the other members of their organisations, their involvement was sought to bring as wide a perspective as possible from the various sectors of the London market when considering the problems arising from asbestos claims.

The AWP was formed, primarily, with the objective of co-ordinating activity in the area of asbestos-related claims. The AWP liaised with the various entities involved regarding the collation and circulation of information to the London market. The distribution of information to the market was probably the AWP's principal preoccupation. However, the AWP had other functions, one of which was to provide a forum for discussing the problems relating to asbestos claims. It was also the aim of the AWP to explore solutions which might be available to resolve some of the issues raised by asbestos-related claims.

The AWP had no involvement in the resolution of the manifestation versus exposure debate.

The AWP did not make any IBNR recommendations. The AWP considered that decisions in respect of IBNR were matters for the individual syndicate or company concerned. I find that the decision of the AWP not to make IBNR recommendations was an honest decision taken for understandable commercial reasons.

Prior to the establishment of the AWP, attorneys were retained usually by the leaders on the slips to advise on the liability claims presented either by policyholders ("servicing attorneys") or in respect of coverage litigation commenced by policyholders against insurers ("litigation attorneys").

Both the servicing and litigation attorneys reported to the London market. The servicing reports dealt with reserve recommendations in respect of insured claims. The litigation reports contained no reserving information but reported on the progress of litigation from either a manifestation or exposure standpoint. Servicing reports provided underwriters with information to assist both syndicates and companies in setting their reserves. That information was in respect of known claims, such as the number and nature of claims; the average settlement costs of the claims; how the indemnity and expense costs could be allocated over the policies and years on risk; and what the recommended reserve figure would be. The attorneys writing the servicing reports (at the AWP's request) began to try to estimate the likely numbers of claims per insured to the end of each accounting year.

Attorneys began sending the servicing reports in draft and these would be discussed by the claims committee.

As the number of both claims and insureds increased significantly over the years, the number of reports that each syndicate or company in the market would receive per year grew enormously. The servicing reports would go to those syndicates and companies which were on the policies at risk for a particular insured. In order to give an overview to every syndicate and company in the market, the AWP decided to ask attorneys to provide an annual overview report in respect of asbestos claims generally. The insured-specific year-end servicing reports focused on information such as reserve recommendations and increases in claims against that particular insured.

In addition to the attorneys' reports, Mr. Jim Ayliffe or the chairman of the AWP sent

out a market circular in respect of major developments or particular asbestos claims issues.

The AWP recognised that the traditional method by which attorneys' reports were obtained and distributed within the market was not appropriate for the handling of asbestos claims.

The London market's standard practice for adjusting claims made under their policies was as follows. The first stamp or participant of the slip is known as the leading underwriter (sometimes there is more than one leader) and it is this company or syndicate which makes the main decisions and recommendations to the other participants on the slip (the "following market"). Invariably, the leader on a slip had negotiated the premium for the policy and would generally be considered expert in the type of business written. The lead syndicates or companies would handle asbestos claims, as they would all potentially serious liability claims, in conjunction with experienced lawyers. The leader would appoint an attorney to advise on the claim. When a claim was made under a particular policy, the claim would be notified to the broker who originally placed the policy and the broker would prepare a claims file. This file would contain all the claims documentation and a copy of the relevant slips. The file would be shown to the leading underwriter for his review and comments. Then, the file would be presented to the following market for review. Each participant would 'scratch' the file to indicate sight of the documents. Comments might also be made on the file, for instance, syndicates or companies might comment as to whether they agreed with the leader's actions or not. All following syndicates and companies do have the right not to agree to a particular course of action or settlement proposed by the leader. However, in the great majority of situations, the following market tended to adopt the position taken by the leader. This was the standard market practice. Attorneys' reports advising on the claims were traditionally addressed to "Underwriters at Interest" and were sent care of the London broker. The attorneys' report would be placed in the claims file prepared by the broker and circulated around the market. This had been done for many years; albeit, there were exceptions to this system if warranted in individual circumstances or, if due to matters of privacy or concern over litigation and discovery, it was thought that the London broker should not be involved.

There were a number of problems with adopting the usual claims handling procedure for asbestos-related claims. First, the leaders on slips for asbestos-related claims might have espoused 'manifestation', whilst participants further down the slip might have been 'exposure' proponents.

As regards the actual coverage litigation between policyholders and their insurers, two sets of litigation attorneys would have to be appointed because of the market split. One attorney would be retained to advise on the course of the litigation from a manifestation perspective, another attorney would advise on the litigation from an exposure viewpoint. Each 'litigation report' would be privileged as between the attorneys and their respective clients; syndicates who supported manifestation as the basis of coverage could not see exposure litigation reports and vice versa.

There was also another privilege issue. The London market insurers recognised that brokers were the agents of the policyholders. This caused the market some concern. Insurers would not wish brokers to reveal details contained in the attorneys' reports, but, as agents of the policyholders, brokers were obliged to pass on information which might be of interest to the policyholders. This meant that circulation of the attorneys' reports by the brokers was not practical.

Further, as both the number of claims against policyholders and actions for declaratory relief by those policyholders increased, so did the volume of attorneys' reports coming into the market. The pressure on the brokers in respect of the distribution of the reports around the market was very great. There was concern that there might be a delay in some participants on the slip being advised of the asbestos claims. The brokers might not always be able to circulate the claim files to the smaller participants at the end of the slips efficiently due to the sheer volume of claims coming in to the market. An asbestos claim might spread over a 20 year span of insurance coverage (in later years it became evident that there might be 30 or 40 years of insurance coverage targeted). In addition, coverage was usually purchased in layers. Each layer might have 50 Lloyd's syndicates and companies subscribing. Often a syndicate or company would write the policy for a number of years. Therefore, an asbestos producer with a claim could have 200 syndicates and 100 companies insuring it. The attorneys' reports (and claims files) would have to be seen by all those participants. Those near the end of the slips might not see the report for months. This was considered to be a serious problem and it soon became apparent to the AWP that a different method of circulation was required.

Initially, the AWP retained Elborne Mitchell, a firm of solicitors, to hold any reports of a confidential nature. The market was asked to visit Elborne Mitchell's office in order to review documents retained there.

By the end of 1981, when the AWP had been in operation for a full year, it was decided that office space ought to be retained by the AWP. This was the start of the more stream-lined distribution process undertaken by the Toplis & Harding service companies and, ultimately, LMCS. Space was obtained from LUNCO and an AWP office established. Ms Ann Seavers was employed to run the office and to carry out and oversee the distribution of information to the market.

One of the first things Ms Seavers did was carry on the process (originally undertaken by the AWP claims committee members) of locating all slips with asbestos exposure. This was part of building up the coverage picture of every insured. She contacted the brokers and obtained slips from which she could ascertain the identity of every participant on every slip for every year in issue.

The fact that asbestos-related claims potentially affected policies written many decades earlier gave rise to problems in identifying the policies which had been written. The starting point for a claim is when the policyholder puts the underwriter on notice. But this notification process had happened in the past in different ways, for example, a notification through a broker or perhaps a claim on US attorneys. In some cases, more than one broker would be involved, and this might result in notification to two different sets of underwriters and the appointment of two sets of attorneys.

These notifications might themselves not identify all the potential coverage that was available. In some cases, insureds had destroyed or mislaid their documentation, or the documentation pointed to one broker's involvement whereas another broker had been used on different years.

These problems were addressed by sharing information, obtaining the more detailed information required (for example, on the coverage which had been written) and appointing one attorney for each insured so as to avoid duplication.

The AWP (and eventually the Toplis & Harding service companies) spent considerable time unearthing the other policies to which London may have subscribed in order to complete the 'jigsaw' of coverage for each insured. Once details of the policies were found, this was provided to attorneys in order for them to build the coverage profile. As more coverage was identified for each insured, a more precise reserve evaluation could be recommended. Ms Seavers would also then contact the underwriters subscribing to those additional policies to put them on notice of the potential asbestos claims. Often, when the AWP claims committee reviewed the policies, the committee discovered there were coverage issues with the original policyholder; generally these were over the cost clauses or the period and limits of the policy if the policy was not an annual policy.

The building up of the complete coverage profiles for each insured was a complex process. The signing of the Wellington Agreement and the setting up of the ACF enabled the claims committee to resolve virtually all of the coverage disputes regarding the policy wordings for the policyholders subscribing to the ACF. Potential signatories to the Wellington Agreement, as a pre-requisite, had to agree a document known as a 'Schedule D' which recorded all known applicable coverages for each policyholder.

In order to facilitate the distribution of information, the AWP claims committee, or appropriate members of the committee, would pass to Ms Seavers copies of any attorneys' reports which they had received. She would be asked to copy and distribute the report to all the participants on all the slips for all years at issue (in respect of claims presented to insurers), or to either the manifestation or exposure participants who had insured particular insureds (in the case of litigation reports).

Thus each participant received a copy of the attorneys' report and, importantly, received it as soon as was practicable after receipt of the report by the leaders/claims committee.

As time went on and the number of reports to be disseminated to the London market increased, the AWP realised that it needed to establish a company through which it could manage administrative matters. The AWP borrowed the Toplis & Harding name to set up Toplis & Harding (Asbestos Services) Limited in 1984. Toplis & Harding (Asbestos Services) Limited in due course became Toplis & Harding (Market Services) Limited to reflect the fact that the AWP's operations had by 1986 expanded to deal with pollution and other health hazards.

In 1981, following the formation of the AWP, the AWP claims committee, on behalf of the London market, retained Alexander Grant & Company to develop and implement the Claims Information System. The heart of the system was its database. The primary purpose of this database was to provide timely and relevant information to the servicing attorneys.

The numerous complaints being filed in the US against policyholders were reviewed and analysed. The information from that review was fed into the database, which captured over 40 categories of information for each claim, including:

There were a number of key facts that the AWP claims committee together with the servicing attorneys wanted to capture for each claimant, whether the claim was still pending or settled: for example, the dates on which the claimant was first exposed to asbestos; the manifestation date; the various producers filed against; the type of disease alleged; and the amounts paid both for indemnity and defence.

From the database, a number of reports could be obtained:-

The reports generated were used by the attorneys for the purposes of their year-end reporting including reserve recommendations. The print-outs from the database were sent directly to the AWP office where they were retained for review.

Reserving and Attorneys' Reports

In his witness statement Mr. Rayment explained the basis on which the reserve figures contained in attorneys' reports were compiled and the way in which a claims manager would use those figures in order to enter a reserve figure for outstanding claims in his syndicate's books.

Johns Manville

Johns Manville was one of the major defendants in the US.

Settlement negotiations involving the London market, Travelers, and the Home Insurance Company took place. In a letter from Manville's lawyer, Mr. Curtis Caton of Heller Ehrman White & McAuliffe in August 1982, Manville suggested that:

The letter went on to suggest that 18% of the day to day costs of Manville's asbestos litigation was attributable to "Old London's years of coverage", and that the cost to London on an exposure basis would be US$200 million.

The settlement which was ultimately reached in July 1984 involved the payment to Manville of a total of US$315 million, of which the London market paid US$94 million. Mr. Rayment said in his witness statement "The settlement has proved to be a good deal, such was the explosion in claims in the latter part of the 1980's".

It is to be noted that:

Mr. Rayment cited Johns Manville Corporation as an example of estimates of potential claims proving to be incorrect. In August 1986 the United States Bankruptcy Court for the Southern District of New York signed an order pursuant to which Johns-Manville undertook an extensive campaign designed to provide the maximum amount of publicity, with respect to the confirmation process of the Plan before the court. The campaign provided for national television and radio advertisements, newspaper advertisements in the six leading US and Canadian newspapers and in the largest circulation daily newspaper in each State, the District of Columbia and each Canadian Province. This publicity campaign was designed to inform as many future asbestos claimants as possible of the impact of the Manville reorganisation, upon whatever rights they might have against Manville as Debtor. I refer to the decision of Judge Lifland dated 18 December 1986 and the subsequent appeals. In his judgment dated 19 January 1995 Senior District Judge Weinstein of the United States District Court E and SD New York said:-

Manville has continued to receive claims which are now paid from the Manville Personal Injury Settlement Trust. This trust was set up as a result of the Manville bankruptcy proceedings. The number of claims against Manville, including claims administered by the trust, now exceeds 400,000.

Market Knowledge of Asbestos

Although the AWP was a focus of activity and a source of knowledge it was not the only means by which syndicates or companies could make themselves aware of developments in respect of asbestos claims. If syndicates or companies had wanted to ask further questions of the US attorneys, there was no difficulty in doing so. Information could also be obtained from other contacts, for example brokers or reinsureds. In addition, there was a considerable flow of information about asbestos in both the general and specialised insurance press. Periodicals, such as Business Insurance, as well as Lloyd's List which is published daily, were widely read in the market.

As a result of the AWP's efforts and the information that was publicly available, there was nothing that was hidden from the market. Information was freely available to those who had written risks which were subject to asbestos claims; and this information was available, and provided to syndicates, whether they were a major non-marine syndicate which had written a large line on a slip, or a small marine syndicate which had taken a tiny line as part of its incidental non-marine account. The market, whether it took its own steps to find out information or simply waited for information provided by the AWP, was well aware of the developing problem of asbestos during the 1980's.

Reserving by the Lloyd's Market Generally

As the 1980's progressed, the techniques used by the attorneys in providing reserve estimates for known asbestos claims became more sophisticated, not least because of the information that was gathered in the database. This database was ahead of anything else that was available, and was eventually used by the ACF together with data supplied by the policyholders.

Throughout the Relevant Period the AWP continued to believe that the right approach was to gather together the best available information about the claims made against London market insureds, and establish specific reserves for those claims, based on that information. For most syndicates (and, I assume, London market companies), this claims data was the starting point for their IBNR assessments.

The Lloyd's market was a very competitive market place: each syndicate would keep its own business to itself. The only people in a position to decide whether or not a year should be closed are the syndicate underwriters and their auditors. There were so many variables - for example, what had the syndicate written; at what levels; what were the policy limits; what was its reinsurance protection; had it bought run-off; had it got rollovers or time and distance policies; did it have surplus in its short-tail or other reserves; the underwriter's philosophy and the business plan of the active underwriter etc. - that it is quite impossible for any outsider to form a view.

The market had coped with Allied Crude, Hurricane Betsy, SMON (a problem arising from Japanese taking too many enteroviaform tablets), Computer Leasing and many other claims. But these and many other problems costing hundreds of millions of pounds had been dealt with and the Lloyd's market had a good profits record over many years. But during the 1980's, the asbestos problem behaved in a way which was quite unprecedented and became much worse than people in the market had anticipated.

The Development of Asbestos-Related Claims

Whilst certain events can now be seen to be key moments (for example the Keene decision), it is easier in retrospect to identify an event as a key development. Mr. Rayment in his witness statement identified the principal reasons why things looked so different at the end of the 1980s and in the early 1990s from the way in which they had looked in the early 1980s, when the problem had been appreciated as significant, but nothing like as serious as it eventually became. The reasons are of course interlinked and there may be others which should be identified.

The starting point is the sheer volume of claims which eventually came to be made. Table 2 illustrates the growth of the problem.

TABLE 2

THE GROWTH IN THE NUMBER OF ASBESTOS-RELATED PERSONAL INJURY CLAIMS

Thus between the Borel decision in 1973 and the beginning of 1981, there were probably something in the region of 8,000 to 10,000 claims in an eight year period. In the period between 1981 and the Wellington Agreement, the filing pattern was (according to an AR dated 1 August 1988) "remarkably steady at 500 new claims per month." The "opening inventory" of the ACF in mid-1985 was about 25,000 claims. In the 18 month period after the Wellington Agreement the rate of claims rose initially to 700 per month and then to around 1000 per month.

In 1987, the claims rose to 2,000 per month (a fourfold increase in the level of claims pre the Wellington Agreement), and then went up to 3,000 per month, before settling at 1,500 per month for a while. By 1990, this had risen again, so that in the early 1990's the rate was about 24,000 a year; an annual total which was broadly comparable to the entirety of claims in the 10 year period after Borel (1973 to 1983).

The current rate of claims is around 60,000 a year. The current total volume of claims (including those that have been settled) is approximately 450,000.

These figures show that despite Borel and despite what is on any view a considerable volume of claims over the lengthy period between Borel and the Wellington Agreement, it was only after the Wellington Agreement that the filings of claims increased dramatically. The fact that the ACF dissolved within just three years after the Wellington Agreement, demonstrates that asbestos-related claims did not proceed in the way that producers and insurers thought they would proceed.

The sheer volume of claims defied expectations and has made the problem much more serious and expensive than was anticipated. It was not, for example, an increase in the cost of settling individual claims which caused the problems; the recommended reserving for known claims has in fact stood up very well. Mr. Rayment said in his witness statement - "What caught us, and the rest of the insurance industry, out, was quite simply the unforeseen increases in the number of claims".

I now turn to consider some of the interlinked reasons why things looked so different at the end of the 1980s and in the early 1990s, from the way in which they had looked in the early 1980s.

At the beginning of the 1980's, there were those who thought that claims brought by asbestos claimants could, to some extent, be successfully defended. The defences thought to be available included:

Later in the 1980's, however, any sense of optimism changed. The attitude of the courts had been shown to be very favourable to plaintiffs. Pleural plaquing and pleural thickening had been recognised in many states as "compensable" injuries. The courts had generally rejected the attempts by producers to dismiss claims, through summary judgment applications, on the basis that insufficient injury had been caused. Similarly, the defences of "safe product" had generally failed to impress juries, particularly when it was shown that a "safe product" had been subject to a process of cutting or alteration which might have released fibres. Reliance upon smoking did have a degree of success in terms of reduction of damages for contributory negligence, but this was counterbalanced by the risks of taking a case through a jury trial.

A further significant difficulty in relation to the availability of defences was presented by the sheer volume of claims that were eventually made. Whereas in the early period it was possible to consider and evaluate each case separately, and resources were devoted by producers and their lawyers to this process, this became increasingly difficult as the volume of claims increased. In the early days, the producers generally had a different attitude to the claims being made against them. They would spend time looking at the merits, and did not want to be seen as a soft touch. They were much more defence oriented. By the end of the decade, however, things had changed. It was simply not possible to examine each claim in depth, particularly since, as time went on, multi-filings on behalf of many claimants became common. Some basic evidence would be required before a settlement offer would be made. But it was not possible or cost-effective to probe the evidence presented by each claimant in great detail, or to seek to prepare evidence to counter the case advanced. It was better to settle; and the purpose of the ACF was to settle meritorious claims without the need for the claimant to resort to litigation.

The result of these developments was that producers became generally less confident that they would achieve defence verdicts. As time went on, some producers who were named as defendants took the view that they could not risk fighting any case, for fear that any defeat would result in them becoming a more popular target: their name would find its way into the plaintiff attorneys' word processors, and they would become an automatic defendant in future cases. Other defendants had already suffered this fate. For example, Keene Corporation had fought and lost cases in the early days. Keene became a major target, and was eventually forced into bankruptcy, even though (according to their senior management) they had only sold about US$700,000 worth of asbestos products in the whole of their corporate existence.

Those manufacturers who did decide to fight cases found that this strategy was unsuccessful. For example, one manufacturer spent something like US$11 million in defence costs before making any indemnity payment. The ATLA (American Trial Lawyers Association) targeted that company in particular, and succeeded in bringing it to its knees.

At the same time as producers were finding it increasingly difficult to win cases against claimants, the insurance industry was finding it increasingly difficult to obtain any success in the insurance coverage litigation. I refer to Appendix 2 (List of US Cases concerning coverage for Asbestos Losses for the period 1978 - 1988). The debate prior to Keene was whether policies would respond on an exposure or manifestation basis. According to Mr. Rayment for some considerable time afterwards, the Keene decision was regarded as an aberration. The decisions of the US courts became more and more pro-insured. It is said that there was a considerable amount of social engineering, so as to ensure that claimants were left with solvent defendants. The producers had, by the end of the 1980s, far more certainty that their insurance policies would respond, and how they would respond, than they did at the beginning of the decade. The availability of insurance cover, as determined by the courts, meant that the motivation to fight cases became less strong.

The successes achieved by claimants in the asbestos litigation, the difficulty which the producers had in dealing with the volume of claims and the perception that the courts would strive to ensure the availability of insurance coverage so that producers could meet the claims against them, served to encourage the plaintiff bar and fuel further claims. The plaintiff bar knew the jurisdictions which were most likely to prove favourable. There was forum-shopping, with New York and the southern states being regarded as particularly favourable.

Asbestos-related litigation became a lucrative area for American lawyers. For the first time ever lawyers set up mobile x-ray units at workplaces in order to identify new claimants. The workers would go into the unit and have an x-ray. If this showed any irregularity, such as a shadow, they would be signed up as claimants then and there. This resulted in a large number of individuals, who might otherwise have never brought claims, becoming claimants. As part of this process, the plaintiff bar targeted traditional industries (for example shipyards) in new locations, and also other industries (for example, motor and allied trades and the steel industry and, to a lesser extent, talc manufacturers, tyre manufacturers etc.) which had not initially been targeted. The number of claims per month which the lawyers were ultimately able to generate is reflected in Table 2.

The number and variety of defendants increased. In early 1982 the London market was concerned with about 14 defendant producers of asbestos products. Further not all of the producers who were defendants in the US had placed, or were understood at that time to have placed, their insurance in the London market. Eventually, 14 companies became something in excess of 250 companies, which were either directly insured or reinsured by the London market.

As bankruptcy overtook some of the original producer defendants, or as their insurance coverage became depleted or exhausted, the plaintiff bar turned its attention to other defendants, for example installers, building owners and others who might have manufactured, handled or distributed products containing asbestos. In some instances, new defendants only came to light when litigation had commenced, usually through the discovery process. The result was a very significant number of defendants who would never have been thought of as potential defendants in the early 1980's.

An associated problem which arose from this growth in the number of defendants was that hundreds of millions of dollars' worth of untapped coverage became exposed. As these defendants were very peripheral, no policy exclusions were generally included in their coverage until very late in the day, if at all. This development was the complete opposite of the way in which, for example, DES had developed. With DES, reserves in the early days had been set up in respect of around 30 manufacturers, but in the end it all boiled down to three major defendants.

A related adverse development involved so-called "premises claims" against building owners. Premises claims arise from plants or other working environments where asbestos products were in the fabric of a building providing lagging for pipes etc.. There were two sorts of employees who would typically bring these claims: the first category being permanent employees and the second category being independent workers hired for particular projects. The latter category of workers (premises claimants) was more significant in relation to premises claims. A typical premises claimant would therefore file suit against a number of building owners alleging injury whilst working at a number of sites. Most premises claims reported to date involve either the utility or petrochemical industries, both of whom (i) employed large numbers of workers over many years; (ii) relied upon asbestos insulation within their high-temperature production operations; and (iii) are high profile, "deep-pocket" defendants due to their net worth and extensive insurance coverages, which again probably only had asbestos exclusions in later years, if at all.

Towards the end of the 1980's (post 1988) Owens Corning, a major producer, adopted a particularly unhelpful strategy which further expanded the class of defendants - their "outreach" programme. They prepared a three volume book containing labels of numerous asbestos products produced by other companies. Owens Corning would ask a claimant whether he recognised any of the labels from his working life. If he did, the companies which manufactured the products recognised would be joined as additional defendants thereby spreading the liability of Owens Corning. An additional 50 or more defendants were added as a result of the actions of Owens Corning, each of which would then look to its own insurance protections. Every time a new insured presented a claim to the London market, it was necessary to track down coverage in respect of that new insured.

The initial focus of the London market was on the low level excess policies. But the volume of claims was eventually such that it pierced those, and went through to higher layer excess policies. Amongst the policies which were eventually impacted were policies written in the late 1970's and early 1980's for insureds (for example, GAF, Johns Manville and Owens Corning) with known asbestos exposure, and other insureds whose asbestos exposure might not have been known when the policies had been written. In addition, it impacted upon reinsurances and retrocessions. The overall impact on reinsurance was not foreseen in the early period.

Asbestos property damage claims also became significant through the 1980's. In the event these claims have not proved to be anything like as significant as seemed possible at one stage, but they were not apparent as a significant problem in the early period. I deal with this factor below.

There was an expectation that as years passed, the dates of claimants' first exposure to asbestos would become later and therefore no longer impact the early years of insurance coverage. The anticipated effect was that not all the coverage in the early years would be exhausted. But this situation has yet to occur. Allied to this point is the fact that the anticipated decrease in the seriousness of illnesses giving rise to claims has not occurred, notwithstanding indications from time to time that such a decline was beginning to occur.

The Wellington Agreement

When the Wellington Agreement in respect of asbestos bodily injury claims was signed in June 1985 those who had negotiated the Wellington Agreement believed that asbestos bodily injury claims would be run-off in an orderly manner. Greater certainty with respect to the coverage issue had been achieved and it was hoped that costs would be significantly reduced. Mr. Rayment said in his witness statement "Although we believed that this would take some years, the end was now in sight, and the way in which we would reach the end had been put in place. ... No-one foresaw the way in which asbestos claims would take off, as they did, in the years following the Wellington Agreement."

The Wellington Agreement was the product of intensive negotiations between insured asbestos producers and their insurers over the preceding two and a half years. Mr. Robin Jackson, with appropriate authority, signed on behalf of Lloyd's syndicates, with the London market companies signing individually on their own behalf. The objectives for all interests was to develop a more cost effective way in which to handle the underlying tort cases and to resolve the many pending declaratory judgment actions throughout the United States. The negotiations for the Wellington Agreement related in particular to the application of coverage and the numerous attendant policy issues. These were complex in nature and at the time that the Wellington Agreement was signed, there was every indication that a 'triple trigger' would continue to be adopted if pending cases were to proceed. In that environment, insurers had no alternative but to recognise the triple trigger philosophy in their negotiations but at the same time, try to evolve in an orderly manner how loss allocations could be made.

The Wellington Agreement resulted in the formation of the Asbestos Claims Facility which was a claims handling facility. Each subscribing producer and each subscribing insurer designated the ACF as its sole agent to administer and arrange on its behalf for the evaluation, settlement, payment or defence of all asbestos bodily injury claims against subscribers. Any claim made by a claimant against a subscribing producer was therefore automatically dealt with by the ACF, rather than by the producer concerned.

It is important to note the distinction between the Wellington Agreement and the ACF. The Wellington Agreement regulated the rights and obligations between the subscribing producers and subscribing insurers. Membership of the ACF was capable of termination, whereas other rights and obligations of producers and insurers under the Wellington Agreement continue in perpetuity. One of the significant achievements of the Wellington Agreement was the settlement of the many declaratory judgment actions and coverage disputes between producers and insurers. The producers would not have agreed to settle and dismiss these actions unless they were sure that the settled issues could not be re-opened at some later date. It was therefore important that the Wellington Agreement (as opposed to the ACF) bound the parties forever. Thus, if the ACF was to be dissolved (as in fact occurred), the agreements reached between producers and insurers concerning the settlement of disputes between them and the resolution of various coverage issues which were in dispute, would stand.

The ACF decided whether the claim should be defended or settled and acted accordingly. In the event that it was necessary to disburse any sums, whether by way of settlement, paying compensation as the result of an unfavourable court decision, or in legal costs, the ACF did so and allocated a percentage of such sums to each subscribing producer. The percentage that each subscribing producer had to bear was determined in accordance with the formula set out in appendix A-1 to the Wellington Agreement.

Once each subscribing producer's share had been calculated (its "generic share"), each of that producer's insurers bore a proportion of the liability thus incurred. All subscribing producers contributed to every claim dealt with by the ACF according to their generic share, whether or not they were initially named in the claim or lawsuit commenced by the claimant. The generic share assigned to each producer was based on the historic asbestos claims statistics prior to the establishment of the ACF. Accordingly, no legal costs were wasted on inter-producer, producer/insurer or inter-insurer disputes, because agreement had already been reached as to how coverage would be applied.

The setting up of the ACF gained the approval of the US judiciary, significantly reducing, as it did, expenditure on legal costs. Prior to the ACF, approximately 1,100 law firms in the United States had been involved in defending asbestos litigation. The ACF immediately reduced this number to around 60, and by 1988 was employing only 55 firms for its legal defence work. Furthermore, the number of cases actually litigated after the Wellington Agreement had been signed was a very small proportion of the total number of claims.

In addition, prior to the ACF, verdicts in favour of the producers against their claimants were obtained in only 28% of all claims that went to trial. The average court award was US$600,000. As a result of the more professional approach adopted by the ACF, by 1988 verdicts in favour of the defence were achieved in 65% of all cases which went to trial and the level of average awards had reduced to US$330,000.

The ACF, in conjunction with the courts, was also responsible for introducing innovative settlement techniques, namely the pleural registry and green card procedure. These were methods by which the Statute of Limitations was suspended for a claimant so that if the claimant developed a "compensable" injury at a later date, he could re-file his complaint.

It should be noted that the mere fact that a producer was not originally named by a claimant was not conclusive of its ultimate liability. If the Wellington Agreement had not been in place, asbestos producers would have continued to name other asbestos producers, not named in the original complaint, in cross complaints. This was a major achievement of the Wellington Agreement, which caused an immediate and dramatic drop in the amount, and costs of litigation.

Mr. Jim Ayliffe was appointed as London's representative on the Asbestos Claims Facility board of directors. Mr. Rayment was nominated as an ex officio non-voting director. Various members of the AWP, including Mr. Robin Jackson, Mr. Ayliffe and Mr. Rayment, undertook a series of "roadshows" to explain the reasons for signing the Wellington Agreement and creating the ACF. These speeches were made to various sections of the insurance and reinsurance markets. The purpose of these talks was to gain the support of insurers and reinsurers. The support of reinsurers was important because they would be called upon to pay reinsurance claims arising from payments made under the Wellington Agreement.

There are some within the market who feel that the Wellington Agreement and the ACF attracted claims which might otherwise not have been made. There are others who think that it had the effect of merely accelerating claims which would in due course have been made in any event. The one-stop service provided by the ACF proved attractive to the plaintiff lawyers, who were keen to see how efficiently it worked. A similar point might be made in relation to the Center for Claims Resolution, whose figures for future settlements have attracted a degree of publicity.

Asbestos Property Damage

The year to 31.12.81

In October 1980, the AWP was advised of the possibility of claims by property owners, claiming that the value of their buildings was diminished by virtue of the inclusion of asbestos, and that such claims had a potential value which could be very substantial. They suggested that property damage claims should be monitored separately. In April 1981 insurers at interest were advised of potential property damage claims by schools districts based upon the necessity for retrofitting non-asbestos products in order to make school buildings once again "safe". There were no recommendations of any specific reserves, whether precautionary or otherwise. The claims which were being brought at that stage, were the bodily injury claims, and this was very much the focus of the attorneys' reports that were received. Property damage was an area which might develop in the future, but which had not yet given rise to any claims activity of note.

The year to 31.12.82

An order was made by the US Environmental Protection Agency in May 1982 which required all schools and similar public buildings constructed prior to January 1979 to be tested within 12 months to determine the presence of friable asbestos. There may have been isolated instances of property damage claims before this order, but this was the origin of the bulk of the subsequent property damage claims, especially those relating to schools.

Whilst this order alerted insurers to the potential for an increase in underlying claims against asbestos building product manufacturers, the London market's initial response was to question whether liability would be established at all. Insurers, both in the US and the London market, did not accept that there was liability under their policies of insurance. There was a question as to whether the claims were really in the nature of "property damage" at all, and whether there had been an "accident" or "occurrence". In addition, even if liability was established, the London market considered, for the purposes of coverage, that only a single date of loss would apply, being either the spread date the product was installed or the date that damage was discovered. Therefore, the market rejected a Keene type spread impacting all policies from installation to discovery.

As a result of the E.P.A. order, two class actions in May 1982 were filed in the Court of Common Pleas in Philadelphia, Pennsylvania on behalf of schools and other public buildings in Pennsylvania.

In the 1982 year-end general market report produced by US attorneys in January 1983 (addressed to the Chairman of the AWP and subsequently circulated to the market), the market was advised that it was likely that considerable activity would develop with regard to damage existing in buildings which incorporated asbestos and that substantial questions arose as to the extent to which any coverage was afforded by the policy wordings and the occurrence date of any coverage that was found to exist. The AWP was to continue to monitor these claims, but the attorneys did not think it appropriate to recommend any specific reserves for property damage claims.

The year to 31.12.83

During 1983 the London market was made aware of additional property damage filings. US attorneys reported in June 1983 the filing of two actions against Dana Corporation. One action was brought on behalf of all schools in Pennsylvania. A second national complaint relating to over 110,000 public and private schools was filed. The complaint was against 50 defendants. The attorneys' recommendation, in relation to Dana, was that underwriters maintain the file without reserve for loss, and that US$2,500 be reserved for their fees and expenses.

In the main, cases were filed against five defendant manufacturers. By the end of 1983, over 35 actions had been filed by various schools districts in various jurisdictions.

In their year-end reports, London market counsel recommended precautionary ground up reserves for some manufacturers. US$100,000 per year of account was the recommendation in respect of one assured. US$500,000 was recommended in respect of a specific property damage claim against another assured. All property damage precautionary reserves were allocated in addition to reserves for bodily injury, after the bodily injury reserves had been applied.

Two assureds filed coverage litigation actions against the London market in late 1983, in Cook County, Illinois and in Los Angeles, California respectively. In a general market letter (in January 1984) for the 1983 year, US attorneys emphasised the importance of achieving a uniform approach within the London market relating to the coverage issues for the attachment of building claims. Advice was obtained from lawyers representing the manifestation and the exposure underwriters in the California Co-ordinated proceedings as to the appropriate trigger for any coverage. Copies of their letters of advice were circulated with the general market letter. Both firms recommended that the appropriate date, for which the market should argue, was the date of discovery of the "damage." As a consequence the market was able to (and in due course did) present a united front on this issue.

In the meantime, the manufacturers were defending the underlying cases vigorously. The typical allegations were: (i) negligence; (ii) strict products liability; (iii) fraud and conspiracy; (iv) unjust enrichment and restitution; and (v) trespass/nuisance. The typical defences were:

The year to 31.12.84

During 1984 there was a continuing increase in the number of property damage filings against producers.

London market attorneys increased precautionary reserves to US$1million per year of account on three assureds and to US$200,000 on certain other accounts.

The year to 31.12.85

In August 1985, US attorneys reported that a manufacturer had successfully defended a schools district case in Tennessee, although they cautioned against drawing "unwarranted conclusions". They also reported the outcome of Lac D'Amiante du Quebec vs. American Home in the District Court of New Jersey. The judgment adopted a triple trigger theory of coverage. The coverage was spread from installation until discovery or removal of the asbestos-containing product. The case involved both bodily injury and property damage. The judgment was appealed.

London market attorneys continued to monitor the increasing underlying claims. They recommended that the precautionary reserves be increased to US$1,250,000 ground up per policy year for the three major defendants.

The year to 31.12.86

The Asbestos Hazard Emergency Response Act was passed in 1986. As a result of this legislation, the E.P.A. undertook a substantial review of schools and other public institutions in the US.

US attorneys reported in September 1986, a degree of success on the part of one assured in dismissing property damage claims.

No further coverage decisions were made in 1986 and the Lac D'Amiante du Quebec vs. American Home decision was still under appeal. London market attorneys continued to monitor underlying claims. The number of filings was increasing and the attorneys recommended reserves of US$5million per year of account for the three major defendants where policy limits deemed it appropriate. These reserves were no longer precautionary, but were recommended reserves. The attorneys also recommended increases in reserves, albeit to a lesser degree, in respect of some other defendants. For example, instead of their previous precautionary reserve of US$200,000, they recommended a US$200,000 reserve per year in relation to one assured, where the policies were not otherwise exhausted by bodily injury claims.

The year to 31.12.87

US attorneys' August 1987 report contained a detailed discussion of the developments relating to asbestos property damage. Producers had had a degree of success in resisting claims, but some adverse verdicts had been sustained by four manufacturers. By August 1987 there were 150 pending property damage lawsuits against producers and between 50 and 100 additional notices of demand. Judgment had been given in favour of insurers in a further coverage action, USF&G vs. Wilkin. The court had held that the claims against the producer were not in respect of property damage, but economic loss, and that installation of asbestos in a building was not an "accident". This decision was, however, subject to appeal.

In view of the increasing activity in relation to property damage claims, and the availability of more information about these claims, the annual reserving meeting held between the AWP's representatives and two firms of US attorneys resulted in a different and more detailed approach to reserving for the known claims. Gross removal costs of US$9,242,822,000 were calculated, but it was felt appropriate to discount this overall figure to reflect the uncertainties; for example, as to whether liability would be established against the producers and by the producers against insurers. This resulted in reserves being calculated on the basis of ground up losses totalling US$2.5 billion.

It is important to emphasise that these were ground up loss figures, that is, the loss to the insured from the ground up. It did not follow that Lloyd's, or the London market, would need to reserve for the full amount of US$2.5 billion in respect of these producers. The amount to be reserved for any particular producer depended upon various factors, including, for example, the deductibles and limits of the policies written and whether or not any particular policy had already been reserved fully for bodily injury claims. In addition, of course, the market had settled the claims with Johns Manville in 1984 on its 1950's and 1960's coverage.

The recommended reserves were spread over the policy years involved in each account and thus allowed for a decision, adverse to the London market's position, on the issue of whether the loss attached at the date of discovery.

These reserves represented a very substantial increase over what had been recommended in previous years.

The year to 31.12.88

In 1988, it was decided that the servicing attorneys should issue separate general market overview reports in respect of property damage and bodily injury, instead of the combined report previously issued. A detailed 20 page report dealing with property damage claims was issued in July 1988, and this was circulated to the London market in the usual way. The market was advised that there were at least 209 separate actions pending against major insureds of the London market. These actions included 8 class actions (2 certified, 6 pending). Three further insurance coverage decisions were rendered in 1988 subject to appeal or final adjudication. These were Pittsburgh Corning vs. Travelers - Eastern District of Pennsylvania; W.R. Grace vs. Continental Casualty - Eastern District of Texas; and Carey Canada vs. Celotex vs. Aetna - District of Columbia.

The trial court in Pittsburgh Corning vs. Travelers held that the presence of asbestos in buildings did constitute property damage, as the asbestos became part of a finished product and resulted in the diminution in the value of the building. The decision on trigger of coverage was that the property damage occurred only when the presence of the asbestos material had been discovered and the market value of the property declined. In contrast, the decision in W.R. Grace vs. Continental Casualty adopted a trigger from installation to removal and it appeared that Carey Canada was likely to be decided in the same way.

Further studies had been conducted following the 1986 AHERA statute. The results of these studies were issued in 1988. The statistics showed that 733,000 public and commercial buildings (defined as all buildings other than state and municipal buildings and school buildings or residential buildings with fewer than 10 units) contained friable asbestos. The EPA estimated that it would cost some US$51billion to take remedial action in respect of all such buildings.

In light of the above, at year-end 1988 the London market's attorneys provided

insurers with a more comprehensive reserve methodology. This resulted in the reserves increasing substantially - particularly for the three major target defendants.

As each property damage defendant had identifiable products, separate percentage allocations of reserves were used for school buildings and public and commercial buildings. A combined total of US$4billion was recommended - US$2billion for schools and US$2billion for non-schools.

Reserves were recommended on a modified continuous trigger approach, as a recognition of the mixed coverage trigger decisions. Reserves were allocated to years of coverage commencing with the first effective date of coverage or involvement with a product containing asbestos and ending no later than 1983. 1983 was the cut-off date as discovery should have taken place by that date. On analysing the underlying claims' installation to discovery dates, it was recognised that a higher percentage of claims would fall to the later years.

According to Mr. Rayment the reserves set at the end of the 1988 year-end have held up very well. "Looking back from today's perspective, I can say with some confidence that the ultimate ground up property damage losses to the various insureds will be within the figures which were used for reserving purposes at the 1988 year-end."

Asbestos Bodily Injury Claims Compared With Asbestos Property Damage Claims, DES and Agent Orange

It is useful to compare the way in which asbestos bodily injury claims have developed, with the way in which some other long-tail claims have developed. Asbestos property damage claims, DES and, to a lesser extent, Agent Orange, are examples of claims which had a very serious loss potential, but which ultimately proved containable in a way that asbestos bodily injury claims have not.

Asbestos Property Damage

Asbestos property damage claims had a very serious potential due to the sheer number of buildings with a potential asbestos problem. In the event, although the market has had to pay significant sums in respect of these claims, the problem did not take off in the way that bodily injury claims did and indeed has now diminished. One of the reasons for this is that the EPA eventually decided that building materials containing asbestos already in place, if undisturbed, should usually remain in place in schools and other public buildings. Removal of asbestos was therefore not required if it was in good repair, since non-friable asbestos, or enclosed asbestos, was not considered a significant health risk. The EPA initially required the removal of asbestos from buildings. After lobbying by a group of producers, the EPA changed its position.

There have been limited additional property damage filings in the last few years, and according to Mr. Rayment it is very unlikely that there will be any significant new filings in the future, not least because of time-bar problems (although time-bars do not apply to government claims). Mr. Rayment believes that the overall reserve figure of US$4 billion in 1988 will hold good.

DES

Diethylstilbestrol was a drug prescribed by doctors for the treatment of certain pregnancy disorders, primarily the prevention of miscarriage. The drug was prescribed to approximately 2,000,000 women from the early 1950's. The drug continued to be prescribed until the US Food and Drug Administration banned it in 1971. When DES claims were first made, the London market was advised that approximately 300 companies might have manufactured the drug. The principal manufacturer of the drug was Eli Lilly and Co., whose market share was substantial. Other principal manufacturers included the Upjohn company and E.R. Squibb and Sons Inc..

The DES claimants filed actions throughout the United States. In every case, the claimant alleged symptoms first manifesting many years after the initial exposure to, or use of, DES. DES claims were often grouped by "generation". The claims brought by the women who ingested DES were known as "first generation claims". "Second generation claims" were those made by the off-spring of the first generation mothers. "Third generation claims" were the claims of the grandchildren of the first generation mothers. The injuries alleged were often serious and ranged from various cancers to birth defects.

The claims gave rise to two theories of attachment: "ingestion" and "manifestation". There was, as with asbestos, a conflict within the insurance industry, which led the major DES manufacturers to instigate declaratory judgment actions against their insurers. In 1982, Eli Lilly commenced declaratory judgment actions against their domestic and foreign insurers covering the years 1942 to 1976, seeking a continuous trigger of coverage based on Keene. The District Court for the District of Columbia found in favour of Eli Lilly and applied modified multiple-trigger allocation. Despite a number of appeals, the judgment was always upheld.

Following the various rulings, a settlement agreement was reached with Eli Lilly. The agreement was signed in November 1987, and was the result of more than two years' complex negotiations between the London market, domestic insurers and Eli Lilly.

The DES problem cost a substantial amount of money, but there proved to be a limited number of defendants, far fewer than the 300 originally identified, and indeed than the 30 for whom reserves were established. In the end it centred on three major manufacturers. In addition, despite the very wide pool of potential plaintiffs, involving three generations, the plaintiff bar generally did not focus on DES as much as it did on asbestos (although there were some specialist firms which did deal with DES claims). Unlike the asbestos claimants, the DES claimants did not have well-organised unions to organise them and fight their corner.

Agent Orange

Agent Orange was a phenoxy herbicide developed in the early to mid 1960's. Its primary purpose was to destroy broad leaf flora. Agent Orange was developed for and sold exclusively to the United States army. It was first deployed in the Vietnam War in approximately 1962. Its usage was stopped in 1971. The army commissioned a number of chemical companies, which included Dow Chemical, Monsanto, Hercules, Diamond Shamrock and Uniroyal, to produce Agent Orange. In 1970, with environmental concerns growing, questions arose regarding the safety of the dioxin produced as a by-product of Agent Orange. As a result, thousands of veterans instituted claims against manufacturers of Agent Orange and the US government, alleging bodily injury. Litigation began with the filing of approximately 900 separate bodily injury lawsuits in various Federal and State jurisdictions throughout the United States. The claims were consolidated in a class action heard by federal judge Jack Weinstein, who took an active role and encouraged the settlement of these claims. Thus, the bulk of the Agent Orange claims were resolved and Agent Orange manufacturers do not appear to face substantial future liability. The settlement involved the payment of US$180 million on behalf of the various manufacturers.

As with DES, there were only a limited number of defendants. In addition, the claimant universe for Agent Orange claims was much smaller than for asbestos. This again resulted in the plaintiff bar not focusing on these claims to the same extent as asbestos.

Impact on other Insurers

Companies in London and the United States were also severely affected by asbestos-related claims. There were a number of company representatives who participated, over the years, in the AWP: Mr. John Heath from Weavers, Mr. Alan Taylor from Turegum, Mr. Tony King from Orion and Mr. Jack Webb from Andrew Weir. None of these companies remains in business; they, together with a large number of other companies have gone into run-off, administration or liquidation as a result of a combination of problems, asbestos being a significant contributory factor. A brochure produced by PricewaterhouseCoopers ("Business Recovery Services Insurance Solutions Report 1999") illustrates the adverse impact of asbestos (usually in combination with pollution) on companies such as Andrew Weir Insurance Co. Ltd., Black Sea and Baltic General Insurance Company, Bryanston Insurance Co. Ltd., Fremont Insurance Company (UK) Ltd., the KWELM companies, North Atlantic Insurance Co. Ltd., Orion, Trinity Insurance Co. Ltd., and United Standard Insurance Company Ltd.