TIME EUROPE
WEB FILE - LLOYD'S OF LONDON
SPECIAL REPORT
The Decline and Fall of Lloyd's of London
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Rokeby-Johnson, who managed to dodge more of the asbestos losses than many of his clients, now enjoys a comfortable retirement in California and South Africa. He told Time last year that he found "nothing offensive" in Roger Bradley's account of their Walton Heath conversations. That account is also contained in sworn affidavits filed with authorities as disparate as the High Court of Justice in London, a British parliamentary investigative committee and the Attorney General and District Court of the State of Utah. It's understood that in the upcoming Jaffray trial, Lloyd's will attempt to rebut Bradley, who has been an occasional paid consultant to the dissident Names.
"What Rokeby-Johnson knew," Bradley said in his affidavit, was that Lloyd's of London had written liability insurance for American asbestos companies since the 1930s (actually, reinsurance on their insurers), that the policies were still in effect, and that they were generally unlimited. There were no maximum amounts where the insurance stopped paying, and no diseases were excluded from coverage. The potential damage awards--and Lloyd's exposure (it had insufficient reinsurance itself)--were limitless.
The day after the golf match, Bradley recounted the conversation to a senior Lloyd's colleague who warned him against repeating it to anyone else. It seemed to Bradley then that at least a few Lloyd's insiders were aware of the looming asbestos problem even as they recruited new Names to bolster the market's capital base.
And recruit they did. The number of names soared beyond 7,000 in the early '70s to 14,000 in 1978 and reached over 34,000 by the late '80s. After nearly three centuries of genteel, discreet one-by-one recruitment in Britain, Lloyd's salesmen fanned out across the world, especially North America, touting Lloyd's as an exclusive club offering secure investments to only a select few who qualified for membership. According to many of these new recruits, the Lloyd's sales pitch promised not only risk-free profits, but the opportunity to join an élite and prestigious "society" which had existed for 300 years and whose membership included titled British aristocrats. New investors signed up in droves. As one Name recalled later, "You don't need to drop the names of many English earls to attract a bunch of North American dentists."
Among the recruiters dispatched to the U.S. was Charles Parnell, an avid golfer who moved about American cities with his golf clubs in tow. Parnell worked for Rokeby-Johnson and for David Coleridge, an even more senior Lloyd's underwriter.
Coleridge and Rokeby-Johnson had been contemporaries at Eton, where Coleridge had been the coxswain and Rokeby-Johnson the No. 7 oarsman on the second-string crew. Coleridge, a descendent of the poet Samuel Taylor Coleridge, would go on to become the deputy chairman and eventually the chairman of Lloyd's. Rokeby-Johnson also wielded increasing influence at Lloyd's through leadership of key committees, including the group that monitored the asbestos problem.
To help their U.S. recruitment drive the three men enlisted the aid of big brokerage firms such as E. F. Hutton (now owned by Salomon Smith Barney, a part of Citigroup) and paid them substantial commissions to introduce them to potential Names. But the smooth talking was left to the Lloyd's men themselves. "No one in your office will be required to spend any of their valuable time explaining the advantages ... in joining Lloyd's," Parnell wrote to a Hutton officer in April 1977. "You will be required only to introduce us to prospective interested persons--I think it important that this 'thing' must be handled with care."
Parnell wooed investors at meetings that E. F. Hutton arranged at places like the plush Pacific Union Club on Nob Hill in San Francisco. The payments to Hutton violated the stated policy of Coleridge's underwriting company, Sturge, whose brochure promised, "We do not pay any introductory commissions nor provide financial reward to companies or individuals through whom new Names are introduced."
According to investigators for the State of California, which brought a lawsuit in federal court in Los Angeles, Coleridge, Rokeby-Johnson and Parnell, as well as other Lloyd's insiders, conspired to defraud investors by lying to them about the risks of Lloyd's investments, especially the losses likely to be caused by massive asbestos claims as well as potentially huge claims from environmental damage at sites such as the Love Canal. The California State Government lawsuit was settled by a compromise so these charges were never tested in court. Amongst them were claims that Lloyd's recruiters led potential investors to believe that the "unlimited liability" clause in their contracts with syndicates was a "mere formality," part of an initiation rite into an exclusive club that had been in business for 300 years without loss.
These charges have been revived by David West, who is now suing Lloyd's in a California state court. He claims he was told that the risk of loss was "purely theoretical ... the risk to Names was effectively minimized and controlled."
Lloyd's recruiters used the same sales pitch in New York, Texas, Ohio, Illinois and elsewhere in the U.S. Another major Lloyd's underwriter, Stephen Merrett, who would become deputy chairman of Lloyd's, was particularly active recruiting big names in New York.
And even as Lloyd's salesmen were emphasising the exclusivity of their club and recruiting many big fish, they did not neglect the smaller fry, thanks to a decision by Lloyd's itself to lower the wealth barrier to membership. The net worth requirement was cut below $1 million, a discount that sucked in many recruits whose assets were not up to the risks involved.
While penetrating the ranks of dentists, doctors, civil servants and retirees around the world, Lloyd's did not neglect its core constituency, the rich and famous of England. In the late '70s it landed former Prime Minister Edward Heath; Frances Ruth Shand Kydd, the mother of Diana Spencer, who would become the Princess of Wales; Camilla Parker Bowles, who would become the mistress of the Prince of Wales; and hotelier Rocco Forte.
Back in the U. S., Lloyd's snared some of the savvier people around as well as the glamour-struck dentists: Stephen Breyer, a Harvard-trained lawyer and jurist who, in 1994, would be named by President Bill Clinton to the Supreme Court of the United States; Wall Street entrepreneur Dan Lufkin, a founder of the renowned investment firm of Donaldson, Lufkin & Jenrette; millionaire businessman Bruce Sundlun, who would become Governor of Rhode Island; discount stockbroker Charles Schwab; and Wall Streeter Oliver Grace Sr., a principal of the New York Stock Exchange firm of Sterling Grace & Company. Grace was a cousin of Rokeby-Johnson, who was instrumental in selling Grace and his wife their Lloyd's investments.
What all these investors have in common, says former Lloyd's Name Dona Evans, is that they were the victims of a sophisticated confidence trick in support of the larger fraud. London-based Evans joined the Sturge syndicate in 1987, two years after Coleridge was appointed deputy chairman. She says he was present at one of the recruiting sessions when Evans, who had been alerted by newspaper articles to possible asbestos problems at Lloyd's, asked whether she could find herself on a syndicate with exposure to asbestos claims. Coleridge, so she recalls, told her not to worry about asbestos because "all this was known about and reserved for, it is all in the past, we never take risks with our new Names, this is the best time to join Lloyd's."
In a later meeting prior to Evans' signing on as a Name, she says Coleridge was again present when the issue of unlimited liability came up. "He was wearing a pink shirt with these exquisite gold cufflinks," Evans recalls. "He stood up and shot his cuffs and said jokingly, 'You are of course liable in theory for losses right down to your cufflinks.' It was a vaudeville gesture intended to make us take the unlimited liability issue lightly. Then she claims he added, 'In practice it never happens because it's all reinsured.'"
Now broke and a party to the Jaffray suit, Evans rejects suggestions that the Names were gullible or greedy investors in search of quick and hefty profits. "I joined in the hope of making enough money to help out with my children's school tuition. I pledged my house and lost everything. I was well aware of the unlimited liability clause but Lloyd's brushed that aside. I believed I could trust Lloyd's to look after my interests in much the same way I would trust my bank. The branch manager might run off with my money but the bank itself would protect my interests."
Evans says the clinching argument for joining came again from Coleridge, who boasted to recruits that Lloyd's was backed by its own act of Parliament. "He said, 'Parliament would never have passed the act had Lloyd's accounts and regulation not been impeccable.' I thought to myself, if Parliament has given its seal of approval to Lloyd's, what more do I need?"
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