Lloyd’s is on the verge of initiating formal legal proceedings against two of its largest brokers, Aon and Benfield, over the Central Fund reinsurance policy they negotiated with a group of six insurers in 1999.
The policy, underwritten by Swiss Re, Employers Re, The St. Paul, Hannover Re, XL and Chubb, formed part of Lloyd’s chain of security. It provided for £350 million ($505 million at the time) of cover over a five-year period with an aggregate limit of £500 million ($722 million at the time).
Lloyd’s claimed recovery on the policy following the attacks on the World Trade Center, but the companies denied total coverage. In March 2005 a settlement agreement with the insurers through arbitration proceedings established £152 million ($292.4 million at the time) as the total recovery amount. In accepting the settlement Lloyd’s made clear that it “reserved the right to pursue others involved in the placement of the policy for the shortfall.”
Under the original terms of the policy Lloyd’s was to be reimbursed for members cash calls exceeding £100 million ($177 million at current rates) in any one year, up to £385 million ($680 million) with an upper limit of £500 million ($885 million at current rates).
Following the Sept. 11 attacks Lloyd’s made several cash calls and eventually filed claims for reimbursement of £477 million ($845 million at current rates). The insurers, led by Swiss Re, claimed they weren’t obligated to pay under the terms of the policy. By Lloyd’s estimates the eventual settlement agreement resulted in a shortfall of £226 million ($400 million). The effect on the Central Fund was higher, however, reducing it by £276 million [$531 million at the time, $488 million at current rates).
Lloyd’s said that since the settlement, it “has been considering its position in relation to the brokers who placed the insurance policy, Benfield and Aon.” Lloyd’s media representative Louise Shield confirmed by e-mail that “following discussions with the brokers Lloyd’s has decided to proceed with legal action.”
Lloyd’s General Counsel, Sean McGovern commented: “We are now actively pursuing this claim through the courts. This is not a decision that has been taken lightly and follows discussions with Aon and Benfield.” Lloyd’s added that the “proceedings are likely to take some time and during this period Lloyd’s will not be in a position to comment.”
The full amount of the claim has not yet been revealed, but it’s reasonable to assume that Lloyd’s is seeking at least £276 million (between $531 and $488 million due to currency fluctuations). Some reports have put the amount, which would include costs, fees, interest, and other incidentals, at £325 million ($575 million).
Topics Lawsuits Excess Surplus Lloyd's Aon
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