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WEB FILE - LLOYD'S OF LONDON
SPECIAL REPORT
The Decline and Fall of Lloyd's of London
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The challenge of responding to these concerns was assigned by Lloyd's chairman Peter Green to his deputy, Walter Nicholas "Murray" Lawrence, who had attended the meeting when R.J. Kiln had ordered that asbestos details be withheld from the auditors.
Like David Coleridge, the descendant of the poet, Murray Lawrence was an Englishman of impressive pedigree, educated at Trinity College, Oxford, where he had read history and become a top amateur golfer. He also had American roots as the grandson of Nicholas Murray Butler, who had been president of Columbia University and the Republican candidate for Vice President of the U.S. in 1912, on the ticket with President William Howard Taft that had lost to Woodrow Wilson.
In his response to the Neville Russell letter, Murray Lawrence, on March 18, 1982, recommended what would have been a reversal of course--that Lloyd's Names be informed of the asbestos crisis. Had the Names received this information, it would have been harder for them later to claim a cover-up. But neither they nor Parliament saw Murray Lawrence's letter or the auditors' letter that had prompted it. Like the 1969 Cromer Report, the Murray Lawrence letter was seen only by a few insiders--the Names claim that he feared wider dissemination would panic the market and destroy Lloyd's. Lawrence confided his fears to a London lawyer and Lloyd's investor, John Osbrey, who had known Murray Lawrence since boyhood and attended Oxford with him, according to Osbrey's interviews with Time and his sworn affidavit which is filed with courts in Los Angeles and London. (Osbrey died in 1999. His evidence, however, can still be used in both the Jaffray and West cases.)
Reflecting the same fear of disclosure, just two days before the Murray Lawrence letter was dated, the Lloyd's membership committee decided "not to refer specifically to asbestosis risks" when initiating new Names, according to the committee's minutes. David Coleridge, the future Lloyd's chairman who had been recruiting names in the U.S. since the '70s, was present at the meeting when the decision was made.
While hiding the asbestos warnings from the Names at large, senior Lloyd's insiders--described to Time by a former Lloyd's official as a "clique within a clique"--took steps to safeguard their own syndicates, reinsuring them to protect against asbestos claims, shifting the liability to others who were unaware of the mounting claims.
The Murray Lawrence letter was "crafted by Lloyd's to create the appearance of a watchful umpire," says New York Assistant Attorney General Mohr. It was written to be buried and was part of the cover-up, he argues. In a December 1998 New York court memorandum, lawyers for the Grace family in New York agree, claiming the letter's sole purpose was "to make it appear that full disclosure had been made." According to the State of California suit in federal court in Los Angeles, the letter was prepared "for the purpose of creating a false record in Lloyd's files to protect Lloyd's from future liability for failing to disclose the asbestos crisis."
These allegations are made not only in the New York Assistant Attorney General's investigation, the Osbrey affidavit and the Grace memorandum, but in the testimony of a former Lloyd's committee member, Ian Posgate, in a Toronto court case and a report prepared for Lloyd's investor John Melville Donner, who had asked his London lawyers, Memery Crystal, to investigate the apparent cover-up of the asbestos problem at Lloyd's. "The Committee of Lloyd's concealed data and made statements that were false and were intended to be false," Memery Crystal asserted.
Lloyd's of London, through its attorneys, Freshfields, has called the Memery Crystal statement "misconceived" in a written reply that rebuts each of Memery Crystal's charges. The Memery Crystal charge--that Lloyd's concealed the "nature and size of asbestos claims"--is echoed, however, by a number of other sources consulted by Time, including a well-placed insider who worked at Lloyd's for several years in the 1980s and 1990s. An internal recommendation for an independent inquiry into the Memery Crystal findings was rejected by Lloyd's in favor of having its own lawyers investigate and respond.
Murray Lawrence, in a deposition, vigorously denies John Osbrey's claim that Lawrence feared market panic. He does acknowledge protecting his own syndicate from asbestos claims while not warning the Names at large.
None the wiser, Parliament on July 23, 1982, gave Lloyd's its exemption from lawsuits. It could be held liable for damages only if a plaintiff could prove "bad faith," which is difficult to establish under English law where the "buyer-beware" principle is more firmly established than in the U.S. (an obstacle the Jaffray suit will have to surmount). Not only was Lloyd's still self-regulating, it was empowered to determine itself what was meant by the notion of self-regulation, unilaterally making rules governing its operations, without answering to any outside authority, even Parliament. Lloyd's secrets were still safe.
Though Lloyd's of London was largely successful in concealing its problems in 1982, they were being whispered around the City of London. The Bank of England grew so concerned that it undertook a top-secret inquiry into Lloyd's. Though the bank had no direct power over Lloyd's, it approved six of the 19 members of Lloyd's governing group and was responsible for the overall financial health of the City of London, where Lloyd's was a large direct and indirect employer and historically contributed almost as much to the British balance of payments as the entire banking system. The Bank of England's inquiry determined that the collapse of Lloyd's, or a significant number of its syndicates, would pose what one analyst termed a "significant systemic risk" to the British banking system. The bank's findings were conveyed to Lloyd's chairman Peter Green in a letter referring to serious liability problems at Lloyd's. Insiders dubbed the study Project Armageddon.
Chairman Green showed the bank's letter to his Committee at a meeting in the chandeliered Adam Room on the second floor of the Lloyd's building between March and May, 1982, according to a draft affidavit from Ian Posgate who was present. Posgate has confirmed the essential details of the affidavit in an interview with Time. The letter "warned of enormous losses, resulting from asbestos claims which were about to engulf the Lloyd's market and of the disastrous effect they could have, not only on Lloyd's itself, but on those banks who had provided Lloyd's guarantees or lent money to Lloyd's syndicates," Posgate says. Numbered copies of the bank's letter were distributed by the chairman's white-gloved waiter, and then collected, with all copies accounted for. Green admonished the Committee to keep the contents of the letter secret, and it was indeed kept secret from the Names, Parliament and all other outsiders. A few Lloyd's insiders in sensitive positions learned of the letter, however. "I certainly remember being told by a number of people, in some cases slightly obliquely, that there was a letter, there was correspondence, there were notes of a meeting that was predicting very adverse financial consequences," says one insider. "This was a significant factor behind the continued recruitment, or indeed the increased rate of recruitment, of Names ... The terms Armageddon and meltdown were put to me in discussions."
Because of its concern, the Bank of England used its influence to get an executive of its choosing, Ian Hay Davison, a chartered accountant who had been in charge of the British office of the global firm of Arthur Andersen & Co., named chief executive officer of Lloyd's in 1983. But if the bank and Davison believed that he could set Lloyd's to rights, they were naive. Davison had limited real power, which remained with the chairman, the richly corrupt Green, Bradley's former boss, who would later be found guilty by a Lloyd's tribunal of "gross negligence" and "discreditable conduct." Green, when once accused of having a conflict of interest, replied, "Gentlemen do not have conflicts of interest." He concealed much of the asbestos problem from Davison, who resigned in November 1985. Green, however, did confide in the man who would succeed him as chairman, Council member Peter Miller. "The 1982 results were 'frankly ghastly' and 1983 and future years may be even worse," Green said in a letter to Miller. "There are plenty of horrors in the pipeline."
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