TIME EUROPE
FEBRUARY 21, 2000 VOL. 155 NO. 7
SPECIAL REPORT
The Decline and Fall of Lloyd's of London
A legendary institution has barely escaped bankruptcy and is now accused of perpetrating the greatest swindle ever. What happened?
By DAVID MCCLINTICK
Caressed by a soft breeze, Ralph Rokeby-Johnson and Roger Bradley surveyed the forbidding fourth hole of the vintage Walton Heath golf course south of London. It was a bright Thursday in early October, 1973.
"Orator, you're not orating," Rokeby-Johnson said. "Have I upset you?" Rokeby-Johnson had been needling the normally loquacious Bradley for inside information since they'd teed off in the autumn golf outing of Lloyd's of London, the world's pre-eminent insurance market. Bradley and Rokeby-Johnson were leading executives at competing firms in the market and Lloyd's men maintained a spirited rivalry in golf as well as business.
But as they shop-talked their way along the first three holes, "Orator" Bradley had fallen silent, because he sensed that Rokeby-Johnson was himself harboring information that could prove explosive: the threat to Lloyd's posed by asbestos, the ubiquitous, benign-looking insulation material that was slowly but surely infecting workers in the asbestos industry with deadly lung diseases--asbestosis and cancer--prompting lawsuits and insurance claims in America.
"What can you tell me?" Bradley finally asked as they idled on the fourth tee, waiting for the players ahead to clear the green.
"What I can tell you," Rokeby-Johnson replied in a stage whisper, "is that asbestosis is going to change the wealth of nations. It will bankrupt Lloyd's of London and there is nothing we can do to stop it."
Fast forward to February 2000. Over a quarter of a century has passed since Ralph Rokeby-Johnson shared his apocalyptic vision with Orator Bradley. Legendary Lloyd's of London, pioneer of the insurance industry and synonymous with it, has escaped bankruptcy. But the organization that was once part of the very bedrock of Britannia has been devastated by losses including massive compensation claims from American workers afflicted by asbestosis and lung cancer. The wealth of nations may not have changed dramatically, but Lloyd's fundamental character has changed, and thousands of Lloyd's investors--the so-called Names who pledge all their personal wealth to underwrite insurance policies issued by Lloyd's syndicates--have been ruined.
The decline and fall of Lloyd's, like all engrossing tragedies, has been building to a spectacular dénouement. The final act is now upon us and waiting in the wings are a group of Names who could yet prove to be Lloyd's nemesis. These are the dissident investors, including members of the so-called United Names Organization, who have refused to settle their asbestos-related debts with Lloyd's because, they claim, they are the victims of a massive and calculated swindle. Back in the 1980s, they argue, Lloyd's duped them into becoming Names by fraudulently misrepresenting its profitability and concealing the ruinous asbestosis losses that were in the pipeline.
Do they have a case? The truth, they say, will soon out. Later this month, in what could prove to be the trial of the new century, the Lloyd's dissidents will claim in England's High Court that they have been the victims, not just of negligent underwriting, but of one of the greatest fraudulent conspiracies of all time. They will argue that they were recruited to Lloyd's at a time when the 300-year-old institution knew it was facing massive asbestosis claims and needed extra capital to absorb its forecast losses. The dissident Names will further charge that this massive fraud was not the work of a few posh-mannered, money-grubbing Lloyd's underwriters, but was condoned and indeed orchestrated by the Lloyd's hierarchy itself.
Sir William Jaffray, a former Name, is one of the dissidents scheduled to take the stand when the case, named after him, opens on Feb. 28. He has no hesitation in alleging fraud at the highest level. "By the late 1970s," he told Time, "the Committee of Lloyd's knew they were facing a crisis and by 1982 the hierarchy knew that Lloyd's was bust. The only way they could keep going was to suppress the asbestos information, cook the books to ensure they were still showing profits and go after new investors." Jaffray claims that in 1982, the year he became a Name, Lloyd's closed its accounts fraudulently under the orders of the then chairman Peter Green. "The books should have been left open to acknowledge the exposure still out there," Jaffray argues. "If I and other investors had known then what the hierarchy and insiders already knew about Lloyd's exposure to asbestos and the losses in the pipeline, I would never have signed up. We were the victims of a massive swindle."
John Melville Donner, an investor and retired executive who worked at Lloyd's for 40 years, the third generation of his family to make a career there, says bluntly that Lloyd's perpetrated "one of the greatest commercial and political crimes of the 20th century." Thomas Seifert, a New York lawyer representing several angry American Names, goes even further. "The facts are clear," Seifert asserted in a letter to British Prime Minister Tony Blair dated Oct. 7, 1997. "Lloyd's has committed the largest, most extensive and pervasive fraud in history."
Harsh words to go with high stakes. If they lose, many of the dissidents will surely be ruined. Not only will Lloyd's come after them for the money they have so far refused to pay to meet the losses of their syndicates--about $44.5 million--but they will be hit by legal costs totaling further millions of dollars. If, on the other hand, they can show that the Lloyd's hierarchy knew about the asbestosis time bomb and failed to stop syndicates from fraudulently recruiting new names to spread their losses, or even encouraged them, then the outlook for Lloyd's will be bleak indeed.
Having denied wrongdoing for so long, Lloyd's would find its credibility in tatters and its efforts to build a new Lloyd's seriously compromised.
Lloyd's denies the allegations of fraud (see box) and will defend itself vigorously in court. "Lloyd's is confident that [the allegations] will ... be rejected," says a Lloyd's spokesman. How seriously it views the upcoming proceedings can be judged from the 48-strong team of lawyers and para- legals from the leading London law firm Freshfields and Lloyd's own legal department it has deployed for its defense at an estimated cost of upwards of $32 million. But as the dissident Names set out their evidence it may well be that Lloyd's, even if acquitted of fraud, will not emerge from this trial with its motto Fidentia--or confidence--intact. And as the trial exposes the dirty linen of the past thirty years, it is hard to imagine investors taking seriously the ancient principal of insurance underwriting which has supposedly governed Lloyd's down the years: Uberrima Fides, or utmost good faith.
TIME's investigation of the events leading up to the Jaffray trial lends some support to the idea that the explosive information of the kind that Rokeby-Johnson shared with Roger Bradley in that conversation on the fourth tee at Walton Heath golf course in 1973 became widespread knowledge among Lloyd's insiders in the years that followed. Those were the years when certain Lloyd's syndicates, with the apparent backing of the Lloyd's hierarchy, made a determined effort to recruit new Names to boost the market's capital base.
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