Although Lloyd's lawyers have five times asked for and received postponements, by the end of February an action called Jaffray vs Lloyd's will either come to court, or be settled by Lloyd's on more or less humiliating terms. It would not be appropriate to go into the claims and counter-claims in any detail. It is enough to say that, if Lloyd's is unsuccessful, the consequences would be catastrophic for the 300-year-old insurance market. Win, lose or settle, the plaintiffs have triggered an historic crisis, not just for Lloyd's, but also quite possibly for the reputation of the City of London as a whole.

Ever since the 1980s a series of groups of Names - individual investors in the market who have made heavy losses and blame the market professionals they had entrusted with managing their underwriting activities - have sued either their agents or Lloyd's. Always in the past, however, they sued for negligence: 17,000 of them in the past few years, leading to many settlements. What is new about the Jaffray action is that for the first time a group of Names are suing for fraud.

The background is asbestos. The essence of the complaint is that Lloyd's insiders knew for years that huge claims arising out of damage to life, health and property from asbestos were hanging over the market. They say that Lloyd's failed to set aside adequate reserves to meet this avalanche of claims and, more important, failed to tell members of the insurance market, let alone the general public, about impending losses on a scale that could bankrupt many individual Names, and indeed have done just that.

Lloyd's have filed two defences: that the knowledge of the underwriters who may have been aware of the approaching crisis was not the knowledge of Lloyd's as an institution, and that Lloyd's relied on figures supplied by others.

Without trying to anticipate the result of Jaffray, it is easy to see that these lines of defence may be fragile. Lloyd's has always proudly made a point of the fact that its Committee and Council benefited from the rich knowledge and expertise of active working underwriters.

The Lloyd's market works in a highly complex way to spread risks as widely as possible. For example, it uses a complicated accounting system in which accounts are held open for three years. That was enough for marine insurance a hundred years ago; it is hopelessly inadequate for "long tail" risks like those that arise from reinsuring American insurance companies against asbestosis claims that may not be reported for years or even decades.

The whole fortunes "down to the last collar stud" of non-working Names were at risk under the Lloyd's principle of unlimited liability.

There were intimations of massive losses as early as the 1960s. By 1980 the Committee of Lloyd's knew that a disaster was on the way. It set up a working party to help decide how large the claims would grow. US attorneys appointed by Lloyd's wrote reports about how much should be reserved to meet claims filed to date. Syndicates then had to add large multiples for the claims that would inevitably arrive but had not been notified.

Auditors Neville Russell warned Lloyd's of the scale of the problem in February 1982. The committee drafted a reply sent by the deputy-chairman, Murray Lawrence, on March 17 that year. It can easily be calculated that the loss even then would come to $3bn.

But the committee did nothing. When external members were brought into the new council after parliament passed new legislation regulating Lloyd's, they were not told about the scale of the problem. External members never knew the risk they were running.

"So what?" many would ask. So a few thousand very rich people, some of them landed gentry with inherited estates, hoped to make a second income on their money without risking the first. Tough.

There is, however, more to it than that. Lloyd's is a parable of several of the things that have gone wrong in British life over the last century.

The most obvious point, and it has been made over and over again, is that the Lloyd's debacle is about class privilege. No doubt public schoolboys were more trusted at Lloyd's than state school boys. Until recently, graduates were few and far between. Skills were learned by sitting next to old Tim, and too often among the skills old Tim imparted were cronyism, long lunches, tax avoidance and skimming off the Names's money into offshore reinsurance companies secretly owned by old Tim and his mates.

No doubt, too, apart from the genuine services it provided for the international insurance market and the shipping industry, Lloyd's was also a machine for protecting the fortunes of some very rich people. It may be a lot less true than it was, but it is still too true.

Less obvious, Lloyd's was an example of how heavily dependent many British businessmen had become on a country they hardly understood. Fatally, Lloyd's failed to understand, not only that asbestos fibre is lethal, and that the illness may not show for 20 years, but also that the US courts' attitude to environmental danger and to the value of individual lives had changed, so that damages in tort litigation had gone through the roof.

Most fatal of all, though, was the instinct for secrecy. Again, Lloyd's did try to be more open in the 1990s, but too little, and far too late. By then, too many things that could not be admitted were going on - as past litigation has revealed. Transparency was not an option.

No doubt those responsible for running Lloyd's honestly believed they were acting in the best interests, not just of Lloyd's, but of the City and of Britain itself. Indeed, in a confused sort of way they came close to identifying themselves with the country.

By trying to hang on to an Edwardian dream of national greatness, they ended up not only losing their friends an awful lot of money, but also bringing the country and its institutions into considerable disrepute. Anyone who doubts that might take a look at an American website called "Lliars of London", now renamed "The Truth About Lloyd's". This presents a harshly unfriendly view, not only of Lloyd's, but also of British institutions generally.

Its contributors are particularly cross that Lloyd's insists that its Names must agree to litigate in Britain. What US citizens find in English courts, it says, for example, is that "they have been reduced to being British colonial subjects again."

The British courts, these American litigants baldly state, "are there to carry out the will of the establishment, protecting the interests of the British social and financial oligarchy".

Whether or not you buy that, Lloyd's is on the rocks. The number of individual Names has fallen from over 32,000 to under 4,000. Corporate capital now supplies more than 70% of the market's financial capacity. At best, Lloyd's will soon be utterly changed. At worst, it is quite possible that it will simply disappear, or become one of those vestigial institutions whose "greatness" we go on about for decades after they have ceased to be great by any objective standard.

The Lloyd's debacle simply could not have happened if business partners, investors, clients, the media, regulators, journalists and the general public had been allowed to know more, and to know it in good time. A society that insists on blundering around in the dark is always going to stub its toes on the sharp corners of the bedroom furniture.