ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, August 28, 1996 TAG: 9608280032
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
DATELINE: BALTIMORE
SOURCE: Associated Press
A federal appeals court on Tuesday overturned a ruling against Lloyd's of London, clearing a major threat to the insurance company's future and its $4.8 billion rescue plan.
Judge Paul V. Niemeyer of the 4th U.S. Circuit Court of Appeals issued the brief decision after a three-hour hearing on the surprise ruling Friday by a federal judge in Richmond against Lloyd's financial reconstruction and renewal plan.
Niemeyer cited the agreement Lloyd's investors signed when they put their money in the concern that specified that any disputes would be resolved in British courts.
The three-judge panel reversed a decision by U.S. District Judge Robert E. Payne of Richmond and ordered the case back to the lower court for dismissal.
Niemeyer said further details of the decision would ``be articulated in a later opinion.''
The ruling came as a crucial deadline approached.
Lloyd's 34,000 investors worldwide have to approve the plan ``by a substantial majority'' by noon today, or Lloyd's will fail its solvency test under British law.
``It was everything we wanted,'' Michael Rauch, a lawyer for Lloyd's, said after Tuesday's ruling.
Rauch said the decision is consistent with rulings in four other federal circuit courts, which held American investors have to take their Lloyd's disputes to Britain.
Peter Lane, the managing director for Lloyd's North America, was beaming in a court hallway.
``I'm pleased we've got all of these Lloyd's matters out of the courts,'' Lane said shortly after consulting by cellular phone with his bosses back in London. ``Now the [Lloyd's] Council can proceed on the original timetable.''
Payne had issued a temporary injunction ordering Lloyd's to give some 3,000 U.S. investors the option of an extra two months to review the settlement proposal. He also ordered Lloyd's to provide more detailed financial information, akin to a financial prospectus, about the intricate settlement.
Most significantly, Payne said American investors should have their cases tried in U.S. courts and found substantial evidence that Lloyd's was violating U.S. securities laws in trying to sell the settlement.
During the hearing, Niemeyer closely questioned investors' attorneys about the consequences of extending U.S. securities laws to activities of the British insurance market.
The judge asked whether a ruling that American securities laws applied to the Lloyd's market might jeopardize $2.2 billion in insurance policies because American investors could use the U.S. law to cancel their participation as insurance underwriters.
``Wouldn't policyholders be left holding the bag?'' Niemeyer asked.
A. Stephens Clay, the lead attorney for the Lloyd's investors said it was not clear if that would be the result.
Lloyd's is trying to emerge from the worst financial crisis in its history, having lost more than $12 billion between 1988-1992 from claims for pollution, asbestos and huge disasters, such as the Exxon Valdez oil spill. The insurance underwriter's Virginia investors are estimated to have lost $2.7 million of that total.
The reconstruction and renewal plan, known as ``R&R,'' would put money-losing insurance policies into a new reinsurance company, called Equitas Group, thereby allowing individual investors to exit Lloyd's and limit their losses.
At the hearing Tuesday, Harvey Pitt, Lloyd's lead U.S. attorney, complained that Payne had overstepped his authority.
``The effect of what the judge did was to insert himself into the regulation of an international insurance market,'' Pitt told the appellate panel. ``If that order is allowed to stand, the R&R plan cannot go forward.
Clay disputed Lloyd's statements that the market would be ruined if American investors get extra time to study new financial details about the settlement.
``We are not imposing any harm on Lloyd's by asking them to wait,'' Clay said.
A spokesman for dissident investors has said Lloyd's overstated the consequences of Payne's ruling.
``We don't think Lloyd's is going down the tubes. ... We do think we're getting our day in court,'' said John Head, a spokesman for Association of Lloyd's State Chairmen.
The Lloyd's investors face financial ruin because they've pledged their entire net worth to make good on the insurance polices they've agree to underwrite. To get into the settlement, investors have to pay a premium of up to $150,000 and surrender their right to sue Lloyd's or its agents for policies covered in the restructuring.
LENGTH: Medium: 91 linesby CNB