BAILII Citation Number: [2000] EWHC 51 (Comm)
Caase No. 1996 FOLIO 2032 
IN THE HIGH COURT OF JUSTICE 
QUEEN'S BENCH DIVISION
COMMERCIAL COURT 
Royal Courts of Justice,
Strand, London WC2
Date: 3 November 2000
Before:
THE HON. MR JUSTICE CRESSWELL
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BETWEEN:
	THE SOCIETY OF LLOYD'S 	
Claimant and Defendant to Counterclaim 	
	and 
		
	SIR WILLIAM OTHO JAFFRAY BT 	
Claimant by Counterclaim 	
- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -
Mr. Charles ALDOUS Q.C., Mr. Richard JACOBS Q.C., Mr. David FOXTON and Mr. Stephen HOUSEMAN (instructed by Freshfields Bruckhaus Deringer) for the Society of Lloyd's.

Mr. Simon GOLDBLATT Q.C. and Mr. Vincent NELSON (instructed by More Fisher Brown) for certain members of the United Names Organisation.

Mr. Patrick TALBOT Q.C., Mr. David DRAKE, Mr. David CRAIG and Mr. Giles RICHARDSON (instructed by Grower Freeman and Goldberg) for other Names.
Sir William Otho JAFFRAY Bt. and other Names appeared in person.

JUDGMENT

The Hon. Mr. Justice Cresswell

\CONTENTS, TABLES AND APPENDICES
\CONTENTS
1. Headnote
2. The Impact in Personal Terms 
3 Glossary of Terms Abbreviations/Acronyms
4. The Scheme of the Judgment 
5. The Lloyd's Litigation 
6. Proceedings against Lloyd's in Other Jurisdictions
7. The Threshold Fraud Point. The Names' Case
8. Lloyd's Case
9. The Relevant Legal Principles
10. The Administrative Structure and Governance of the Lloyd's Market
11. The Regulatory Background for the Auditing and Accounting Regime at Lloyd's
12. The Rules and Procedures Governing the Admission to Underwriting Membership of Lloyd's and Related Matters
13. RITC - Some General Principles - The Role of the Managing Agents/Underwriter
14. RITC - The Role of the Auditors
15. The Witnesses
16. An Overview of the Nature and Development of Asbestos-Related Claims
17. Differing Views as to the Likely Outcome of Asbestos- Related Claims. The Writing of Run-Off Contracts
18. Open Years
19. The Years in Question. 1978 to 1988
20. 1989 and Subsequent Years
21. Developments in Relation to Capital Structure
22. Analysis of and Conclusions as to the Threshold Fraud Point
23. E & O Cover at Lloyd's
24. The Market Scandals. The Failings Revealed by the Lloyd's Litigation
25. Conclusions

TABLES
Table 1 The Closure of Years - RITC; Lloyd's Global Accounts; Joiners.
Table 2 The Growth in the Number of Asbestos-Related Personal Injury Claims.
Table 3 Outhwaite Run-Off Contracts

APPENDICES
1. Lloyd's Litigation (and Related Litigation). List of Cases
2. List of US Cases Concerning Coverage for Asbestos Losses for the Period 1978-1988
3. The Chronology of Certain Information Relevant to Asbestos- Related Claims for the Period 1978-1988
4. Production of the SSOB, Aggregate Results and the Global Accounts, the Development of Globals and the Process for the approval of SSOB and Globals

1. HEADNOTE
This action forms part of the Lloyd's Litigation. The Lloyd's Litigation is the largest and most complex piece of civil litigation this jurisdiction has ever seen. The Commercial Court's approach to the case management of the Lloyd's Litigation is referred to in chapter 5. The Court decided a number of preliminary issues which (subject to appeal) were designed to assist in resolving issues of principle common to one or more of six categories of cases (LMX Cases, Long-Tail Cases, Personal Stop Loss Cases, Portfolio Selection Cases, Central Fund Litigation and Other Cases). The Court in addition selected from cases in a particular category lead or pilot cases for trial as to liability (and principles relating to quantum) in the hope that decisions in these cases would provide broad guidance in relation to other cases in the same category. 
At the time of the R&R settlement offer of July 1996 there were about 90 syndicate based Action Groups with relevant litigating syndicate years of account.
In September 1996 a market settlement was arrived at. About 95% of Names accepted the market settlement. 1,752 Names did not accept. About 180 Names have since reached individual settlements with Lloyd's. Of the remaining Names, 216 Names are parties to this action.
Appendix 1 hereto contains a list of cases forming part of the Lloyd's Litigation (and related litigation) both before and after the market settlement in September 1996.
There are (or have been) proceedings against Lloyd's in the United States of America, Canada, Australia, Belgium, and before the European Commission.
This trial is concerned with the Threshold Fraud Point being the issue whether Lloyd's made misrepresentations which it knew to be untrue and/or as to which it was reckless whether they were true or false, and whether such misrepresentations were communicated to the Names and if so, when? The trial is confined to allegations of fraud during the Relevant Period 1978 to 1988. The Names' case is in tort for fraudulent misrepresentation. The Names say that certain alleged representations derived (i) from the Brochures and (ii) from the Lloyd's Aggregate Results/Global Reports and Accounts as at 31 12.81 to 31.12.87 made by Lloyd's to external Names when they were applying to join Lloyd's or considering whether to continue as underwriting members of Lloyd's, were false and fraudulent to the knowledge of Lloyd's. The Names say that Lloyd's knew or was reckless as to the fact that: (i) the Lloyd's market's exposure to asbestos-related claims required reserves and RITC to be set at figures far in excess of those which were set out in the Lloyd's Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87; and (ii) to the extent that there was under-reserving, the burden would be borne by Names underwriting in future years.
Lloyd's deny that they made the alleged representations in the Brochures and the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87. Further Lloyd's say that none of the elements of the tort of deceit are made out and in particular all allegations of fraud are emphatically denied.
The relevant legal principles as to the tort of deceit are set out in chapter 9. In order to sustain an action in deceit, there must be proof of fraud. Nothing short of fraud will suffice. Fraud is proved where it is shown that a false representation has been made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless whether it be true or false. To prevent a false statement from being fraudulent, there must be an honest belief in its truth.
The Names' case must be judged against the relevant structure and background. It is necessary to have regard to and understand the way the Lloyd's market worked in the Relevant Period. Thus it is necessary to consider the administrative structure and governance of the Lloyd's market (chapter 10); the regulatory background for the auditing and accounting regime at Lloyd's (chapter 11); the rules and procedures governing the admission to underwriting membership of Lloyd's and related matters (chapter 12); RITC - the role of the managing agents/underwriter (chapter 13) and the role of the auditors (chapter 14).
I set out in chapter 15 a broad description of the evidence of the witnesses and my assessment of that evidence.
An overview of the nature and development of asbestos-related claims in the United States is set out in chapter 16. Between 1973 and the beginning of 1981 there were 8,000 to 10,000 asbestos-related claims. In the period between 1981 and the Wellington Agreement (June 1985) the filing pattern was remarkably steady at 500 new claims per month. The opening inventory of the ACF in mid-1985 was about 25,000 claims. In the 18 month period after the Wellington Agreement the rate of claims rose initially to 700 per month and then to around 1,000 per month. In 1987, the claims rose to 2,000 per month (a fourfold increase in the level of claims pre the Wellington Agreement), and then went up to 3,000 per month, before settling at 1,500 per month for a while. By 1990, this had risen again, so that in the early 1990s the rate was about 24,000 a year; an annual total which was broadly comparable to the entirety of claims between 1973 and 1983. The current rate of claims is around 60,000 a year. The current total volume of claims (including those that have been settled) is approximately 450,000. There were a number of interlinked reasons why things looked so different at the end of the 1980s and in the early 1990s, from the way in which they had looked in the early 1980s. 
Differing views were held as to the likely outcome of asbestos-related claims in the Lloyd's market (and elsewhere) in the late 1970s and early 1980s. One illustration of this is the fact that Outhwaite, Merrett, Meacock and other syndicates wrote a number of run-off contracts.
The Brochures and the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 did not contain the alleged representations. Further the other ingredients of the tort of deceit were not made out. In particular the Names have not proved fraud in the relevant sense. 
The Names' case is confined to asbestos-related losses. The losses suffered by the market in and after the Relevant Period were caused by a number of factors in addition to asbestos-related claims including (i) pollution and other long-tail claims; (ii) the North European storms in 1987; Piper Alpha and Hurricane Gilbert in 1988; Hurricane Hugo, the San Francisco Earthquake, Exxon Valdez, and Phillips Petroleum in 1989 and the North European storms in 1990; and (iii) the LMX Spiral.
As the Names' case is confined to asbestos-related losses, it is necessary to single out the impact of these losses. 
Significant protections should have been afforded to Names on long-tail syndicates by the role and duties of the managing agents/underwriter and of the auditors. Further it was for the members' agent (not Lloyd's centrally) to advise prospective Names/ Names as to the risks inherent in long-tail syndicates, along with all other material risks.
If there were factors which affected or might affect the adequacy of the reserves, the syndicate auditor was required, under Clause 3 of the Audit Instructions, to report to the Committee and obtain their instructions before issuing the Audit Certificate/Syndicate Solvency Report. The letter from Neville Russell dated 24 February 1982 as to asbestos-related claims, was written pursuant to Clause 3. I find that the Murray Lawrence letter was sent to all underwriting agents (including members' agents) and all active underwriters, as stated in the final paragraph of the letter. Further, I find that the Murray Lawrence letter and the Randall letter (both dated 18 March 1982) were an honest response to the issues raised by the Neville Russell letter.
The allegation that Lloyd's knew or was reckless as to the fact that the Lloyd's market's exposure to asbestos-related claims required reserves and RITC to be set at figures far in excess of those which were set out in the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87, is rejected. The Committee/Council of Lloyd's were generally entitled to assume that auditors were performing their duties competently. The allegation that the 1979 year of account should have been left open by syndicates affected by asbestos-related claims is also rejected.
For the reasons set out in the judgment I find for Lloyd's, and against the Names, on the Threshold Fraud Point. The costs of these proceedings will be subject to rigorous taxation. 
I make a number of further observations (see chapter 25). It is high time that the Lloyd's Litigation and related litigation here and overseas came to an end.
Despite all the reforms described in the judgment, the catalogue of failings and incompetence in the 1980s by underwriters, managing agents, members' agents, and others (established by judgments of the court, by disciplinary hearings and other means referred to in chapter 24) is staggering (and brought disgrace on one of the City's great markets). External Names (whether they accepted R&R or not) were the innocent victims of the failings and incompetence. Many Names have suffered enormously in financial and personal terms. A fair overall solution (as between Lloyd's and those who did not accept R&R and have not settled since R&R) is unlikely to be achieved without independent assistance. Such an overall solution is in the interests of Lloyd's and the Names. An independent review by an independent panel set up by Lloyd's should consider the individual cases of those Names who did not accept R&R (and who have not settled since R&R). 

2.THE IMPACT IN PERSONAL TERMS
I wish at the outset of this judgment to refer to the impact in personal terms, on Names and others, of the events at Lloyd's in and about the 1980s.
On the one hand (i) membership of Lloyd's involved considerable risks; and (ii) asbestos and pollution claims, the exceptional number of catastrophes in the late 1980s and other factors would have caused widescale losses if managing and members' agents had acted competently throughout.
On the other hand there was widespread incompetence on the part of some underwriters/managing agents (and some members' agents). I recognise that no words can adequately describe the devastation that has been caused to many individuals in financial and personal terms.
I asked the parties to attempt to agree a short statement as to the impact on Names and others but they were unable to do so. I accordingly set out their respective positions.

The Names
The Names say that the difficulties that Lloyd's faced during and after the Relevant Period caused (a) average losses per person of approximately £120,505 for working Names: (b) average losses per person of approximately £263,400 for external Names: (c) average losses per person of approximately £469,051 for Jaffray litigants. The resulting hardship varied on an individual basis.
Many UNO members suffered financial ruin.
The UNO membership has paid to Lloyd's, through drawdowns on bank guarantees, loss of funds deposited at Lloyd's and by direct payments approximately £66,000,000 (an average of £308,000 each). The same people, together, have judgments against them amounting to approximately (a further) £50 million in respect of Equitas premia. This does not include the Central Fund writs which Lloyd's have reinstated.
Currently, 14 UNO members qualify for Legal Aid. As the result of drawdowns of bank guarantees, or other bank borrowing to pay Lloyd's, 62 UNO members have been evicted from or forced to sell their homes and/or businesses and are living with relatives or in cheap rented accommodation.
Many non-UNO Names (accepting and non-accepting) have been made bankrupt by Lloyd's and by banks and institutions.
About 60 UNO members are currently in receipt of statutory demands/bankruptcy petitions from Lloyd's and fear they will be made bankrupt.
Fear of bankruptcy and homelessness continues to take its toll on UNO members, litigants in person and other Names. Names say that Lloyd's difficulties were the cause of, or probable explanation for, 15 suicides - also of marriage breakdowns, divorce and the break-up of families. Two non-UNO Names have attributed the suicides of their children to Lloyd's.
Many Names, of all categories, have suffered. Doctors have attributed a range of serious illnesses to Lloyd's problems.

Lloyd's Comments on the Names' Submissions as to the Hardship Caused as a Result of the Difficulties Faced by the Lloyd's Market
Lloyd's regrets the undoubted financial hardship and distress caused to many Names and their families from the massive losses incurred in the very late 1980s and 1990s. Similar statements of regret were made by Mr. Murray Lawrence and Sir David Rowland, both former Chairmen of Lloyd's, during the course of their evidence in this case. Indeed throughout the 1990s (starting with his appointment as chairman of the Task Force in 1991) the principal focus of Sir David's work at Lloyd's was to find a way of assisting Names to meet their liabilities at Lloyd's, permitting them to trade through where appropriate and achieve finality where they so wished.
The culmination was, of course, the R&R Settlement Offer worth £3.2 billion to Names. R&R 
provided very substantial assistance to many Names, being accepted by an overwhelming majority of membership. Lloyd's never sought to argue that the settlement could undo the 
hardship many had already suffered, but it was the best alternative that could be provided and was the result of an enormous amount of work over a period of years. Sir David summed up the position when introducing the detailed terms of the offer in the Settlement Information Document:
"I deeply regret the events that have made the reconstruction plan necessary. They must never be allowed to recur. I am reminded daily of the damage membership of Lloyd's has caused to thousands of people. We in the Lloyd's market have a clear responsibility to develop a solution that offers the best prospect of alleviating this damage.
I believe we have such a solution in the reconstruction plan. It is not perfect: we do not command unlimited resources and time is no longer on our side. But it offers better prospects than continued litigation. It offers assistance not otherwise available for those Names who have borne the heaviest losses. And it offers Names the chance to carry on with their lives, relieved of the uncertainty caused by their membership of Lloyd's.
I have said many times that no compromise settlement can eradicate our recent history; the losses and their consequences were real. We have sought - and I believe achieved - the best result possible in the interests of the whole Society".
Lloyd's questions the reliability of the figures put forward by the Names as to the personal effect of the losses at Lloyd's. Lloyd's does not believe that these figures can or should be relied upon as representing an accurate statement of the position.
Based on their finality statements, Lloyd's has provided the court with the aggregate total gross and net liabilities as at the same time of R&R of the 216 Names who are parties to this action. On average, each of these Names faced a gross liability of £364,000; the average amount they would have had to pay under R&R was £64,000. Only one of the 216 Names had to pay in excess of £100,000. Others would have qualified for additional assistance had they accepted the offer, reducing their net liabilities even further. Post R&R means based settlement offers were made to 63 Jaffray Names. Lloyd's does not accept that there is any justification for any Jaffray Name who is unable to pay his/her Lloyd's debt not seeking a settlement with Lloyd's.
Only 7 of the 216 Names who are parties to this action have been put into bankruptcy on the petition of Lloyd's. Following the Garrow decision, any statutory demands against Jaffray Names were set aside and any outstanding bankruptcy petitions were dismissed.
The Names say that they have identified 15 individuals who were Lloyd's members and who, they say, committed suicide for reasons that were or may have been associated with losses they suffered through underwriting at Lloyd's. Of these individuals three were formerly working members of Lloyd's. In correspondence with More Fisher Brown, Lloyd's has questioned the reliability of the figures produced by the Names for Lloyd's related suicides. Lloyd's further questions the ability to ascribe reasons for the circumstances surrounding the suicide of an individual without examining the detailed facts in each case.

3.GLOSSARY OF TERMS AND ABBREVIATIONS/ACRONYMS
GLOSSARY OF TERMS
Active Underwriter 	In relation to a syndicate, the person at the underwriting box with principal authority to accept risks on behalf of the members of a syndicate. The active underwriter is usually a director or employee of the managing agency for the syndicate.	
Accumulation 	Concentration of risk, for example where an insurer has written many policies on liabilities that could result in losses occurring at one and the same time.	
Agent Orange 	A chemical defoliant used by the US army in Vietnam which caused serious bodily injury to US personnel who happened to be exposed to it, because it contained a suspected carcinogenic substance known as dioxin.	
Aggregation 	(1)see "Accumulation" above.
(2)a provision in an excess of loss reinsurance contract whereby the cost of successive claims may be added together for the purpose of establishing the sum recoverable.	
Aggregate limit 	A provision in a (re)insurance contract which caps the (re)insurer's maximum liability at a ceiling beyond which the (re)insurer ceases to be liable. The ceiling is reached when all the (re)insurer's liabilities under the contract added together equal the level at which the ceiling is set.	
Asbestos 	A fibrous silicate material which achieved wide usage by reason of its physical properties such as the ability to withstand fierce heat, corrosion and decay under almost every condition of temperature and moisture. Its uses included roofing, plasterboard and fireproof wallboard, floor tiles, an ingredient in paints and sealants, car brake linings and clutch facings.	
Asbestos Working Party
("the AWP") 	A body set up by the non-marine market in about August 1980 with a view, inter alia, to providing a forum for discussing problems relating to asbestos-related claims, to collecting and making available information relating to the asbestos problem.	
Asbestosis and other diseases associated with asbestos exposure	Asbestosis, emphysema, lung cancer and mesothelioma. 	
Attorneys' reports 	Reports obtained from firms of US attorneys in relation, inter alia, to pending litigation in the United States and in relation to the level at which notified claims against particular assureds were expected to settle. These reports were collated by AWP and made available to all interested underwriters. Particular attorneys' reports were commonly to be found on the claims files of syndicates exposed to claims the subject of those reports.	
Binding authority 	An authority given by an insurer (or reinsurer) to a broker or other agent authorising that agent to accept risks on the (re)insurer's behalf.	
Casualty business 	Liability or third party business. Particularly used for those classes of US business where liability arises for accidents or events causing bodily injury or property damage.	
Cedant 	An insurer which cedes business under a reinsurance agreement.	
Closed year 	In relation to Lloyd's syndicates which adopt a three-year basis of accounting, a year of account for which a result (profit or loss) has been declared following the reinsurance of all remaining liabilities attaching to the account, both known and unknown.	
DES 	Diethylstilboestrol – a drug which had been given to pregnant women in the United States and which had been blamed for causing cancer in, amongst others, their female offspring.	
Direct insurance 	Insurance as opposed to reinsurance.	
Discounting 	The reduction in amount of a loss reserve to take credit for an anticipated future growth through investment of the sum reserved, before the claims fall to be paid.	
Exposure 	(1)The state of being subject to the possibility of loss.
(2)The measurable extent of risk.
(3)A basis for determining the scope of coverage under an occurrence based policy which requires the claimant against the assured under the policy to have been exposed to the cause of the injury during the policy period (cf. manifestation and triple trigger).	
Incidental non-marine 	Insurance business written by a marine underwriter as an adjunct to his marine insurance account.	
Incidental non-marine syndicate 	A mirror syndicate to a marine syndicate (with identical composition of stamp) into which a marine underwriter could write incidental non-marine business.	
Incurred but not reported (IBNR) 	A term used for claims arising from insured events which have occurred but of which the insurer has not yet been advised. At the end of a period of account (usually 36 months in the case of Lloyd's syndicates) a reserve is established to cover the expected cost of such losses ("the IBNR reserve").	
Incurred losses 	The aggregate of paid and known outstanding claims.	
Leading Underwriter 	An underwriter who is regarded in the market as being an expert in a particular class of business and who therefore "leads" risks by taking the first (often relatively substantial) line on terms which are then adopted by the following market as well.	
Line slip 	An authority (or facility) given in writing by a number of underwriters which enables the leading underwriter(s) to agree to proposals for insurance of risks within a prescribed class on behalf of all underwriters subscribing to the line slip provided that the proposed insurance is within the scope of the terms of the authority. 	
Loading 	An additional factor or amount taken into account in loss reserving (e.g. to increase notified outstanding claims to take account of IBNR).	
Long-tail 	A term used to describe classes of insurance business (e.g. US casualty, including asbestos, pollution, medical malpractice) where it is known from experience that notification or settlement of claims may not take place until many years after the writing of the business. 	
Managing Agent 	The underwriting agent (normally a limited company or partnership) which has the day-to-day conduct of a syndicate or group of syndicates on behalf of all names who are members of the managed syndicate or syndicates.	
Manifestation 	A basis for determining the scope of coverage under an occurrence based policy which requires the injury sustained by the claimant against the assured, to have manifested itself during the policy period.	
Members' Agent 	The underwriting agent (normally a limited company or partnership) which advises names on their choice of syndicates, places names on the chosen syndicates and provides general advice to names in relation to their underwriting affairs.	
Name 	An underwriting member of the Society of Lloyd's, who subscribes to policies of insurance through membership of one or more syndicates for particular years of account. When an insurance is subscribed by the active underwriter on behalf of the syndicate, each name is liable for his stated fraction only of the insurance but not for the fractions of other members ("each for his own part and not one for another … and in respect of his due proportion only"). The personal liability of each name is unlimited.	
Occurrence basis 	A policy is said to be written on an occurrence basis if it covers the consequences of events occurring during a period of insurance even though claims may not arise or be made until after expiry of the period of insurance (compare claims made policies which confine the liability of the insurer to claims made during the currency of the policy).	
Open year 	A year of account in respect of which the ultimate financial outcome remains to be determined. Each year of account of a Lloyd's syndicate must remain open for 36 months and may remain open beyond 36 months.	
Outstanding claims 	A claim which has been notified to the insurer but has not yet been settled.	
Outstanding claims reserve 	A reserve held by an insurer to meet claims notified but not yet paid. 	
Reinsurance to close ("RITC") 	The method by which the underwriting account of a Lloyd's syndicate is closed (usually after 36 months). The reinsurance to close is effected by means of a reinsurance to close contract - an agreement under which underwriting members (the reinsured Names) who are members of a syndicate for the closed year of account agree with the underwriting members who comprise that or another syndicate for a later year of account (the reinsuring Names) that the reinsuring names will indemnify the reinsured Names against all known and unknown liabilities of the reinsured names arising out of insurance business underwritten through that syndicate and allocated to the closed year, in consideration of:
(a)payment of a premium; and
(b)the assignment to the reinsuring Names of all rights of the reinsured Names arising out of or in connection with that insurance business.	
Retrocession 	Reinsurance of reinsurance.	
Roll over policy 	Such policies can take various forms and an all-embracing definition cannot be given	
Run-off contract 	A run-off contract is a policy of reinsurance by which a syndicate or insurance company is reinsured, subject to the terms of the policy, against outstanding and potential future liabilities, claims and expenses in respect of business written into past underwriting years or into such past years of account as are specified in the policy. Such an excess of loss reinsurance contract may provide the reassured with protection which is unlimited both in aggregate amount and in time and which covers the reassured's whole account or a defined part of it.	
Short tail 	A term used to describe classes of business where it is known that for the most part claims will be notified and settled within a short period after the insurance was written.	
Stamp capacity 	In relation to a syndicate, the aggregate of the syndicate premium limits of all the members for a given year of account of the syndicate.	
Stop loss reinsurance 	A form of reinsurance under which the reinsurer pays the cedant's losses in any year to the extent that they exceed a specified loss ratio or amount. The reinsurance is usually (though need not be) subject to a specified monetary limit.	
Syndicate 	A group of underwriting members underwriting insurance business through the common agency of a managing agent, each underwriter taking a proportion of the insurance for himself/herself, without assuming liability for the proportions taken by the other members of the syndicate.	
Syndicate auditor 	In relation to a syndicate, the auditor responsible for (i) auditing the syndicate's annual financial statements and (ii) carrying out the work required for the purposes of the annual solvency test.	
Time and Distance policy 	Such policies can take various forms and an all-embracing definition cannot be given. They could include policies of reinsurance where recovery under the policy is not made until a period of time after the policy is taken out and where the amount of available indemnity is determined by the investment income on the original premium over that period of time.	
Triple-trigger 	A basis for determining the scope of coverage under an occurrence based policy whereby the policy is triggered if any part of the injury process from first exposure to manifestation of injury occurs during the policy period including so-called "exposure in residence" (i.e. progressive injury occurring after exposure to asbestos has ceased). The triple-trigger theory was first adopted in Keene Corporation v Insurance Company of North America 667 F 2d 1034 US Circuit Court of Appeals, District of Columbia Circuit. Pursuant to that decision the insured could choose the policy year from which to pursue recovery and the chosen insurer was required to meet the total liability of the insured even though part of the injury process may have occurred at times when the policyholder was uninsured or had no proof of insurance coverage.	
Year of account 	Each syndicate operates with a given membership for one calendar year only. The calendar year of a syndicate is called the syndicate year of account (e.g. the 1985 year of account of a particular syndicate ). 	

ABBREVIATIONS/ACRONYMS 
AARD Accounting and Auditing Review Department
AASC Accounting and Auditing Standards Committee
ACF Asbestos Claims Facility
AGGREGATE RESULTS Financial information, produced by Lloyd's prior to the Global Accounts as at 31 December 1982, relating to the underwriting results of the Lloyd's Market and released to underwriting agents and the public.
ALM Association of Lloyd's Members
ANNAN Association of Non-North American Names
APCAuditing Practices Committee of the Consultative Committee of Accounting Bodies
AR Attorneys' Report
AWP Asbestos Working Party
BIBA British Insurance Brokers' Association
CCAB The Consultative Committee of Accounting Bodies 
CCR Center for Claims Resolution
CEG Chief Executive's Group
CIS Claims Information System
DES Diethylstilbestrol
DTI Department of Trade and Industry
ECG Environmental Claims Group
EPA US Environmental Protection Agency
GAD Government Actuary's Department
IBNR Incurred but not reported
ICA 1982 Insurance Companies Act 1982
ICA 1974 Insurance Companies Act 1974
LATF Lloyd's American Trust Fund
LAUA Lloyd's Aviation Underwriters' Association
LIBC Lloyd's Insurance Brokers' Committee
LMCS London Market Claims Services
LMUA Lloyd's Motor Underwriters' Association
LMX London Market Excess of Loss
LNAWP Lloyd's Names Association Working Party
LPSO Lloyd's Policy Signing Office
LUA Lloyd's Underwriters' Association
LUAA Lloyd's Underwriting Agents' Association
LUCRO The Marine Market Claims Office
LUNCO Lloyd's Underwriters' Non-Marine Claims Office
LUNMA Lloyd's Underwriters' Non-Marine Association
MAIR Members' Agent's Information Report
Merrett Judgment The judgment of Cresswell J in Henderson v Merrett Syndicates Ltd [1997] LRLR 265
MSSC Members' Solvency and Security Committee
MSSD Members' Solvency and Security Department
MPRs Minimum PercentageReserves
Murray Lawrence letter The letter of 18.3.82 set out in full in chapter 19
NDA Names Defence Association
OPL Overall Premium Limit
PI Premium Income
PSL Personal Stop Loss
PTF Premiums Trust Fund
RBUA Richard Beckett Underwriting Agencies Ltd
Relevant Period 1.1.78 to 31.12.88
RITC Reinsurance to close
SRF Special Reserve Fund
SSC Solvency and Security Committee
SSOB Statutory Statement of Business being the annual return required by statute to be furnished by Lloyd's to the Board of Trade or the DTI (known as Annual Statements prior to 1982 year end). 
UAAD Underwriting Agents and Audit Department
UNO United Names Organisation
XL Excess of Loss

4.THE SCHEME OF THE JUDGMENT 
This action forms part of the Lloyd's Litigation. An account of the Lloyd's Litigation is set out in chapter 5, followed by a summary of proceedings against Lloyd's in other jurisdictions (chapter 6).
In view of the significance of this case domestically and internationally, I set out below in some detail the way the Lloyd's market worked in the Relevant Period, so that the essential background to the issues in this case is identified.
This trial is concerned with the Threshold Fraud Point (chapter 7) being the issue whether Lloyd's made misrepresentations which it knew to be untrue and/or as to which it was reckless whether they were true or false, and whether such misrepresentations were communicated to the Names and if so, when? The Names' Pleaded Case and the Names' Case as Summarised in Closing Submissions are set out in chapter 7. Lloyd's Case is set out in chapter 8.
The Relevant Legal Principles are set out in chapter 9.
The way the Lloyd's market worked in the Relevant Period is described in chapters 10 to 14:-
- The Administrative Structure and Governance of the Lloyd's Market (chapter 10);
- The Regulatory Background for the Auditing and Accounting Regime at Lloyd's (chapter 11);
- The Rules and Procedures Governing the Admission to Underwriting Membership of Lloyd's and Related Matters (chapter 12);
- RITC - Some General Principles - The Role of the Managing Agents/Underwriter (chapter 13); and 
- RITC - The Role of the Auditors (chapter 14).
I set out in chapter 15 a broad description of the evidence of the witnesses and my assessment of that evidence.
There follows:- an Overview of the Nature and Development of Asbestos-related Claims (chapter 16), an account of the Differing Views as to the Likely Outcome of Asbestos-Related Claims and The Writing of Run-Off Contracts (chapter 17), and reference to the extent to which the number of Open Years increased during the Relevant Period (chapter 18).
In chapter 19 I set out a chronology of certain important events in 1978 to 1988 being The Years in Question. 1989 and Subsequent Years are considered in chapter 20 and Developments in Relation to Capital Structure in chapter 21.
My analysis of and conclusions as to the Threshold Fraud Point are set out in chapter 22.
In chapter 23 I consider E&O Cover at Lloyd's and in chapter 24 The Market Scandals and The Failings revealed by the Lloyd's Litigation.
My conclusions are set out in chapter 25.
The Tables and Appendices are listed at the beginning of this judgment.

5. THE LLOYD'S LITIGATION
The Lloyd's Litigation is the largest and most complex piece of civil litigation this jurisdiction has ever seen.
The Commercial Court's approach to the case management of the Lloyd's Litigation has been described in earlier judgments. The Lloyd's Litigation was divided into the following categories:-
(a) LMX Cases.
(b) Long-Tail Cases:-
(i) Run-Off Contract Cases
(ii) Reinsurance to Close Cases.
(c) Personal Stop Loss Cases.
(d) Portfolio Selection Cases.
(e) Central Fund Litigation.
(f) Other Cases.
The Court identified and decided a number of preliminary issues which (subject to appeals) were designed to assist in resolving issues of principle common to one or more categories of case.
The Court in addition selected from cases in a particular category, lead or pilot cases for trial as to liability (and principles relating to quantum), in the hope that decisions in these cases would provide broad guidance in relation to other cases in the same category. A variety of case management techniques (e.g. use of sample Names and limitations on formal discovery) were employed in group cases.
I refer to the statements issued by the court from time to time reporting on progress in the six categories of cases listed above.
The R&R settlement offer of July 1996 listed 85 syndicate based Action Groups with relevant litigating syndicate years of account. A letter from More Fisher Brown dated 24 July suggested that there were at least five additional Action Groups.
In September 1996 a market settlement was arrived at. About 95 % of Names accepted the market settlement. 1,752 Names did not accept. About 180 Names have since reached individual settlements with Lloyd's. Of the remaining Names, as at 1 November 1999 about 148 were claimants in this action and about 1,420 were not. A number of the remaining Names have joined this action since 1 November 1999. Thus there are 216 Names who are parties to this action.
I refer to the three statements I made in relation to the management of this case on 1 November 1999 and 21 January and 3 February 2000.
Appendix 1 hereto contains a list of cases forming part of the Lloyd's Litigation (and related litigation) both before and after the market settlement in September 1996.

6. PROCEEDINGS AGAINST LLOYD'S IN OTHER JURISDICTIONS

A. United States of America - California
An action by David, Deborah and Susan West was until recently proceeding against Lloyd's in the Superior Court in the State of California (the State Court). I was informed by letter dated 2.11.00 from Freshfields that this action had been settled on terms which are confidential.

B. Canada
(I) New Brunswick
There are a number of actions ongoing against Lloyd's. None of the plaintiff Names are parties to the Jaffray action.
Ten Names have commenced proceedings directly against Lloyd's. These proceedings were commenced in 1997/8. The Names claim that they were victims of fraud and fraudulent misrepresentation by Lloyd's inducing them to apply for membership of Lloyd's and that the information provided to them was a violation of the New Brunswick Securities Act. The factual allegations underlying the Names' claims of fraud cover similar ground to the allegations being made by the Names in the Jaffray action. (The New Brunswick Names also allege inter alia that Lloyd's acted fraudulently in respect of the "LMX spiral activity".)
In respect of these proceedings Lloyd's has brought motions permanently to stay the actions on applications based primarily on the Names' execution of the General Undertaking which provided that any disputes relating to their membership of or underwriting at Lloyd's would be subject to the jurisdiction of the English Courts and subject to English Law and in the alternative on forum non conveniens grounds.
In three cases Lloyd's motion has been heard and in each case the decision of the Judge has been to order a permanent stay (one was by consent). In the two contested cases the orders (both made in January 1999) were subject to certain conditions should the Names bring action against Lloyd's in England (which they have not done), namely that: 
(i) Lloyd's would not require security for costs;
(ii) Lloyd's would waive any precondition that any judgment it obtains against the Names would be satisfied before they could proceed; and
(iii) they would waive any contractual provision that required the Names to pay any contractual obligations arising between the Names and Lloyd's before any action might lie against Lloyd's by the Names.
In these two cases the New Brunswick Court of Appeal in January 2000 dismissed the Names' appeals. Leave was sought by both Names to appeal to the Supreme Court of Canada, but this was refused on 5 October 2000. 
No hearing date has been fixed for any of Lloyd's other motions. There is an agreement amongst Counsel that the motions will be bound by the result in the matter in which leave is currently sought.
Eight Names have joined Lloyd's as a third party to proceedings brought by the Royal Bank of Canada against them for indemnity for monies paid by the bank to Lloyd's following calls made on letters of credit/bank guarantees held by Lloyd's as security for the Names' underwriting. Lloyd's was joined to the proceedings in April 1998 and brought motions permanently to stay the third party proceedings (on the same basis as set out above). The claims made by the Names in these third party proceedings are the same as in the direct actions referred to above. No hearing date has been fixed for any of these motions and Counsel have agreed again to accept the determination of the two contested matters.

(ii) Prince Edward Island
Eight Names commenced actions against Lloyd's in Prince Edward Island in January 1999. In this action the Names allege that Lloyd's, directly and through agents, subjected them to fraudulent misrepresentations and fraudulent, deceitful and reckless practices, but for which they would have neither become members of Lloyd's nor have undertaken particular underwriting obligations. The Names also allege that Lloyd's failed to comply with the licensing, prospectus and other disclosure and filing requirements of the Prince Edwards Island Securities Act. 
The factual allegations underlying the Names claims of fraud cover similar ground to those allegation being made by the Names in the Jaffray action, to which these Names are not a party. (These Names also allege, inter alia, that Lloyd's acted fraudulently in respect of the "LMX Spiral" and made misrepresentations in connection with the use of time and distance policies).
Lloyd's brought motions permanently to stay these proceedings primarily on the basis of the forum selection and choice of law clauses in the General Undertaking executed by the Names, and in the alternative on the basis of forum non conveniens. On 7 April 2000 the Judge granted a stay subject to the same conditions imposed by the New Brunswick Court but with one further condition namely that:
"Should the plaintiffs proceed expeditiously to bring an action for fraud against the defendant [Lloyd's] in England and be denied access to English Courts for hearing the action, the plaintiffs can apply to this Court to end this stay of proceedings".
No appeal has been made though time for doing so has not yet expired.

C. Australia
Proceedings have been commenced against Lloyd's in Australia by 8 Names, all of whom are counterclaimants in the Jaffray proceedings. The most advanced of the 8 cases is White v Lloyd's. Proceedings were commenced by the Commonwealth Bank of Australia against Mr White in the Victorian State Court concerning letters of credit issued by the bank to support Mr White's underwriting at Lloyd's. Subsequently, in December 1998/February 1999 Mr White served Lloyd's with a Third Party Notice. As regards the other proceedings, a Mr Luxton issued proceedings against Lloyd's in the Victorian State Court on 2 September 1999, and 6 other Australian Names issued proceedings against Lloyd's in the New South Wales State Court on 3 September 1999. Apart from the White proceedings, none of the other Writs has been served on Lloyd's.
Lloyd's is not permitted to view the Writs issued (but not served) in the New South Wales jurisdiction, but has been able to view the Writ issued, but not served, by Mr Luxton, due to the different procedural rules in Victoria. That Writ sets out substantially the same causes of action and a similar factual basis as the Third Party Notice served by Mr White and, whilst it is not known, it is suspected that the same is the case with the Writs issued in New South Wales.
As regards the legal basis for his claims against Lloyd's, Mr White has pleaded several statutory causes of action arising under the Australian Trade Practices Act and the Corporations legislation, including:
· Section 51A and Section 52 of the Trade Practices Act 1974 (Mr White pleads that Lloyd's conduct was misleading and deceptive and relies on Section 51A of the Trade Practices Act, which deem a representation as to a future matter to be misleading unless the corporation has reasonable grounds for valuing the representation); and
· s.83 of the Companies Act 1961 and ss.169-171 of the Companies (Victoria) Code: Mr White pleads that Lloyd's made an offer or invitation to the public to subscribe for or purchase membership at Lloyd's and failed to perform its statutory obligations of disclosure. 
In addition, Mr White has pleaded negligent misstatement against Lloyd's, and relies upon the doctrines of "public policy" and "unconscionable" bargain in seeking to impugn or avoid, amongst other provisions, the exclusive jurisdiction clause contained in the 1986 General Undertaking which Mr White signed. Whilst the legal basis for the claim is somewhat different to the fraudulent misrepresentations relied upon by the Names in the Jaffray proceedings, the factual basis for Mr White's claim is very similar to the factual basis of the claims being made by the Names in the Jaffray action and, indeed, the original White pleading appears to draw heavily on the original pleading in the English action.
Lloyd's challenged the jurisdiction of the Victorian Court to hear the claims made by Mr White on several grounds, including the fact that Mr White (like the other 7 Australian Names) had signed the General Undertaking 1986 (which contains an exclusive jurisdiction clause in favour of the English Court). On 29 July 1999, his Honour Justice Byrne decided that, notwithstanding the exclusive jurisdiction clause, the Victorian Court could hear the claims made by Mr White. Lloyd's applied to the Court of Appeal of the Supreme Court of Victoria for leave to appeal, but Lloyd's application was refused on procedural grounds. Subsequently, Lloyd's applied to the High Court of Australia for special leave to appeal, but special leave to appeal was again refused on procedural grounds by the High Court on 11 February 2000. 
Following that judgment, Lloyd's applied for an anti-suit injunction from the English Court to restrain the 8 Australian Names from progressing their claims against Lloyd's in Australia, pending the outcome of the Jaffray trial. The application was made on notice, but Mr White and the other Australian Names chose not to be represented at that hearing, although they did lodge written submissions prepared by their Australian lawyers. Mr Justice Cresswell granted a temporary anti-suit injunction against the 8 Australian Names on 3 March 2000.
Since 3 March 2000, and in reliance upon the anti-suit injunction granted by the English Court, Lloyd's has sought a stay in the Victorian Court of the White proceedings pending the outcome of the Jaffray trial. In order to be able to apply for a stay, Lloyd's entered a Notice of Appearance in the White proceedings on 6 March 2000 and attended a hearing for directions on 10 March 2000. Lloyd's application for a stay was postponed and was later heard before her Honour Justice Warren on 18 and 19 April 2000. The decision of the Victorian Court was handed down on 21 June 2000. Her Honour Justice Warren granted Lloyd's application to stay the White proceedings pending delivery of judgment in the Jaffray proceedings or until further order. 
As regards the other 7 Australian Names, they were also subject to the temporary anti-suit injunction and, to date, have not served their Writs on Lloyd's.

D. Belgium: André Milhoux
Mr Milhoux is a Belgian Name who, in the summer of 1996, obtained an order from a court in Brussels which purports to have the effect of freezing his deposit at Lloyd's. His deposit is made up of a Bank Guarantee issued by the Banque Bruxelles Lambert. A demand has been made by Lloyd's on the guarantee but the Banque has not met this because of the court order. £55,449.24 remains of that Guarantee. Lloyd's has intervened in the proceedings, in the Tribunal de Première Instance, Brussels, seeking to have the court's order set aside.
Pleadings have not closed and a hearing date has not been set.
Mr Milhoux is a litigant in the Jaffray proceedings. In his Belgian pleadings, he claims that Lloyd's demand on the guarantee is a consequence of the fraud to which he claims the Names were victim and therefore fraudulent itself.
He alleges intentional fraudulent presentation of the yearly accounts, deliberate complicity by Lloyd's in the syndicates' failure to constitute sufficient reserves to cover asbestos claims, intentional fraudulent presentation of profits by Lloyd's in the annual accounts, tolerance of a false representations by the syndicates of their financial situation and he says that Lloyd's aggregate accounts encouraged 20,000 new Names to join, who would not have done so if they had realised the true state of affairs.

E. European Commission
(a) A short petition has been sent to the European Parliament with supporting documents.
(b) A complaint has been made to the European Commission alleging a failure by the UK government to comply with the First European Non-Life Insurance Directive (EC73/239).

7. THE THRESHOLD FRAUD POINT. THE NAMES' CASE.
This trial is concerned with the Threshold Fraud Point being the issue whether Lloyd's made misrepresentations which it knew to be untrue and/or as to which it was reckless whether they were true or false, and whether such misrepresentations were communicated to the Names and if so, when?
The trial is limited to and by reference to three selected or sample Names namely Captain Hindle who joined Lloyd's in 1979, Sir William Jaffray who joined Lloyd's in 1982 and Mrs. Dona Evans who joined Lloyd's in 1988. The trial is confined to allegations of fraud during the period 1978 to 1988.
Table 1 below sets out certain information which explains the background to the Threshold Fraud Point.

TABLE 1
AS AT 31ST DEC. 	YEAR OF ACCOUNT 	CLOSED INTO 	BY SYNDICATES IN ABOUT
WITH MANAGING AGENTS' + AUDITORS' REPORTS IN ABOUT	LLOYD'S AGGREGATE RESULTS/GLOBAL A/C's AS AT 31ST DECEMBER 	PUBLISHED IN OR ABOUT AUGUST OR SEPTEMBER 	REPORT LLOYD'S AGGREGATE/GLOBAL RESULTS FOR LATEST CLOSED YEAR (and two subsequent open years)	WOULD BE AVAILABLE TO BE SEEN BY JOINERS (and continuing Names) FOR YEAR 	YEAR 	
1977 	1975 	1976 	Mid 1978 	1977 
Aggregate Results 	1978 	1975 	1979 	1 	
1978 	1976 	1977 	Mid 1979 	1978 " " 	1979 	1976 	1980 	2 	
1979 	1977 	1978 	Mid 1980 	1979 " " 	1980 	1977 	1981 	3 	
1980 	1978 	1979 	Mid 1981 	1980 " " 	1981 	1978 	1982 	4 	
1981 	1979 	1980 	Mid 1982 	1981 " " 	1982 	1979 	1983 	5 	
1982 	1980 	1981 	Mid 1983 	1982
Global Accounts 	1983 	1980 	1984 	6 	
1983 	1981 	1982 	Mid 1984 	1983 " " 	1984 	1981 	1985 	7 	
1984 	1982 	1983 	Mid 1985 	1984 
Global Report/Accounts 	1985 	1982 	1986 	8 	
1985 	1983 	1984 	Mid 1986 	1985 " " 	1986 	1983 	1987 	9 	
1986 	1984 	1985 	Mid 1987 	1986 " " 	1987 	1984 	1988 	10 	
1987 	1985 	1986 	Mid 1988 	1987 " " 	1988 	1985	1989 	11 	

(1) The Names' Pleaded Case
The Names' pleaded case is as follows.
Knowledge or awareness on the part of Lloyd's are alleged to be references to the knowledge or awareness of the persons listed below during the period 1978 - 1988:
(i) Certain members of the Council and/or Committee of Lloyd's: Sir Peter Green, F. Barber, Richard Ballantyne, D.J. Barham, J.R.K. Beckett, I.R. Binney, P.G. Bird, B.J. Brennan, A.H. Chester, M.H. Cockell, D.E. Coleridge, P. T. Daniels, R.D. Hazell, C.O. Gibb, C.D.D.Gilmour, A.W. Higgins, V.V. Hudson, R.J. Kiln, W.N.M. Lawrence, S.R. Merrett, Sir Peter Miller, C.K. Murray, E.E. Nelson, A. Parry, I.R. Posgate, Sir David Rowland, C.H.A. Skey (including, where relevant, their membership of Audit and Membership Committees and their statements in the Global Reports and Accounts as LUNMA Chairmen respectively during the Relevant Period). The Names say that where any one or more of these persons acted during any year between 1978 and 1988 as Chairman or a Deputy Chairman of the Committee/Council of Lloyd's they carried special responsibilities in the oversight and administration of the Lloyd's market and had particular influence which was likely to be decisive in matters relevant to the problem of asbestos-related claims. 
(ii) K.E. Randall.
(iii) H.R. Rokeby-Johnson, Robin Jackson, Bryan Kellett and Michael Williams (the other LUNMA Chairmen who contributed to the Global Reports and Accounts in the Relevant Period).
(iv) Certain members of the Asbestos Working Party during the Relevant Period (E.E. Nelson, H.R. Rokeby-Johnson, R.A.G. Jackson, D. Tayler, C.H.A. Skey).
The Names say that the persons listed at (i) to (iv) above were the principal sources of Lloyd's knowledge of the asbestos problem during the Relevant Period and constituted the directing minds of Lloyd's.
The Names say that by express decision of Lloyd's no mention of problems related to asbestos was made at Rota Committee interviews to persons joining as external Names for the years 1981 to 1989.
The Names say that by virtue of the Lloyd's Acts 1871 - 1982 Lloyd's had a continuing duty and responsibility to act at all times in good faith in accordance with its objects.
As to the Names' case in fraud, the Names say that certain representations made by Lloyd's to external Names when they were applying to join Lloyd's or considering whether to continue as underwriting members of Lloyd's, were false and fraudulent to the knowledge of Lloyd's.
The Names say that from at least 1975 until 1988 it was the established policy of Lloyd's to encourage the recruitment of new members and the expansion of the market's underwriting capacity.

Lloyd's Representations - Representations Derived from the Brochures - Representations Derived from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 
The Names say that the Lloyd's Brochures from time to time contained statements which constituted representations to the effect that a Name joining Lloyd's:
(i) Could have confidence in Lloyd's as an institution to safeguard his/her interests;
(ii) Could trust those who were chosen by Lloyd's to regulate the Lloyd's market and manage its affairs;
(iii) Because of the way in which Lloyd's regulated and monitored underwriting accounts year by year:
(a) could rely on syndicate accounts;
(b) could in underwriting and/or deciding whether to remain a member of Lloyd's have confidence in the audited syndicate results, for results of past years;
(c) could be sure that Lloyd's as part of its regulatory duties would ensure that when prospective liabilities were reinsured by one syndicate year into another, such liabilities were being fairly assessed and quantified as between the two syndicate years.
The statements in the Brochures relied upon by the Names as supporting these alleged (derived) representations are set out in Appendix 3 to Sir William Jaffray's Re-Amended Points of Defence and Counter-claim. The statements relied upon include statements in:-
(a) Notes for Applicants for Underwriting Membership 1975/1977 version;
(b) Brochure for Applicants for Underwriting Membership: issued by Lloyd's January 1980;
(c) Brochure for Applicants for Underwriting Membership: issued by Lloyd's December 1981;
d) Brochure for Applicants for Underwriting Membership: issued by Lloyd's December 1983;
(e) Brochure for Applicants for Underwriting Membership: issued by Lloyd's December 1984;
(f) Membership: The Issues: December 1986;
(g) Membership: The Issues: December 1987.
The relevant documents allegedly seen by Captain Hindle prior to joining Lloyd's in 1979 were the 1975/1977 version of Notes for Applicants for Underwriting Membership.
The relevant documents allegedly seen by Sir William Jaffray prior to joining Lloyd's in 1982 were the 1980 edition of Lloyd's Brochure for Applicants for Underwriting Membership and a schedule of the previous 7 closed years of account of his proposed syndicates.
The relevant documents allegedly seen by Mrs. Evans prior to joining Lloyd's in 1988 were the 1986 edition of Membership: the Issues and the Global Reports and Accounts as at 31.12.84 and 85.
The Names say that Lloyd's knew and intended that prospective Names would read and rely upon the Brochures and where applicable Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87 and the statements and representations contained therein, for the purposes of considering whether or not to become a Name.
It is alleged that induced by, and in reliance upon, the representations derived from the Brochures, Captain Hindle joined Lloyd's in 1979, Sir William Jaffray joined Lloyd's in 1982, following Rota Committee interviews. It is alleged that induced by, and in reliance upon, the representations derived from the Brochures and/or from the Global reports and Accounts as at 31.12.84 and 85 (see below) Mrs. Evans joined Lloyd's in 1988, following a Rota Committee interview. The Names say that Rota Committee interviews gave Lloyd's an opportunity, which it did not on any occasion take, to correct misrepresentations made by it as to the sound financial position of the Lloyd's market by giving due warning to prospective Names as to the impact of asbestos-related liabilities on the Lloyd's market. By its continuing failure to give that warning Lloyd's invited Names joining Lloyd's during the Relevant Period to place continuing faith and reliance upon the image of Lloyd's contained in the Brochures including the above representations.
Captain Hindle underwrote business at Lloyd's for the years of account 1979 to 1994, Sir William Jaffray for the years of account 1982 to 1989 and Mrs. Evans for the years of account 1988 to 1993 (all inclusive). 
It is alleged that in deciding to remain a member of Lloyd's for each of the further underwriting years beyond the first, Captain Hindle/Sir William Jaffray/Mrs. Evans continued to rely upon the above representations derived from the Brochures. Further it is alleged that (where applicable) in deciding to remain a member of Lloyd's for each of the underwriting years beyond the first, Captain Hindle/Sir William Jaffray/Mrs. Evans relied upon representations derived from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87. 
The alleged representations derived from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 were as follows:-
(a) that the Lloyd's market was in a sound financial condition;
(b) that Names could safely join Lloyd's and/or continue their membership of Lloyd's and/or increase their Premium Income Limit with confidence that known and projected claims had been prudently and adequately reserved to ultimate.
The Names rely on specific statements in the said Appendix 3 as supporting these representations. They say that Lloyd's knew and intended that Names and prospective Names would read and rely upon the said Aggregate Results/Global Reports and Accounts and the statements and representations contained therein for the purposes of considering whether to continue membership of Lloyd's and/or increase Premium Income Limits or to join.
It is alleged that induced by, and in reliance upon, the representations derived from the Brochures and the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87 Captain Hindle, Sir William Jaffray/Mrs. Evans continued his/her membership of Lloyd's and/or increased his/her Premium Income Limit.

Falsity of Lloyd's Representations
The Names say that the representations derived from the Brochures were false at the time Captain Hindle/Sir William Jaffray/Mrs. Evans joined Lloyd's in that:
(i) The minimum audit reserves were manifestly inadequate in the light of Lloyd's knowledge of the Lloyd's market's exposure to asbestos-related liabilities such that:
(a) Lloyd's regulation of Lloyd's annual audit and solvency test was not stringent and could not be reasonably regarded as such;
(b) The annual solvency test was not a "searching" one in practice and could not reasonably be regarded as such; and/or
(c) Lloyd's annual audit procedures did not give "ample" margins of security, but in fact gave no margin of security at all.
(It is alleged that the MPRs as determined by the Committee for each of the relevant years were set to Lloyd's knowledge or recklessly below Lloyd's own estimate of what was required to maintain the solvency of Lloyd's).
(ii) Lloyd's failed to make proper and full disclosure, or ensure such disclosure was made, of material information relating to the exposure of the Lloyd's market to potentially huge and escalating asbestos-related claims and failed to regulate properly or at all the manner in which syndicates or their auditors reserved for and accounted for such potential liabilities;
(iii) Lloyd's had not strictly regulated the activities of agents operating in the Lloyd's market;
(iv) Lloyd's had in relation to the closing years of syndicates exposed to asbestos-related claims failed to implement or apply appropriate audit regulations with the result that an equitable premium for RITC as between the reinsuring members and reinsured members was not assessed and charged having regard to the nature or amount of the liabilities to be reinsured;
(v) The insurance market at Lloyd's was not and had not been properly regulated by Lloyd's;
(vi) Those chosen to regulate and manage the affairs of Lloyd's and to protect Names' interests and disseminate information, prior to and from the date of Captain Hindle/Sir William Jaffray/Mrs. Evans becoming a member of Lloyd's, withheld from him/her and/or misrepresented information concerning asbestos-related liabilities to which he/she was likely to become exposed as a member.
The Names say that the Aggregate Results/Global Reports and Accounts for the period 31.12.82 to 87 were (insofar as a Name joined Lloyd's in reliance on the said Aggregate Results/Global Reports and Accounts) false at the time when the Names joined and false at the time when Captain Hindle/Sir William Jaffray/Mrs. Evans increased his/her Premium Income Limit and/or continued as a Lloyd's member and/or to underwrite from year to year in that as Lloyd's were well aware at all material times:
(i) Lloyd's syndicates were exposed to huge and escalating asbestos-related claims which had not been adequately reserved and/or reserved to ultimate;
(ii) the RITC represented in the Aggregate Results/Global Reports and Accounts as at 31.12.81 and subsequent years did not reflect the true exposure of the Lloyd's market for known and projected claims for asbestos-related losses relating to the closed year and to all previous closed years.
Further or in the alternative it is alleged that the representations derived from the Brochures and the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87 became false.
The Names say that the representations derived from the Brochures and the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87 were made by Lloyd's knowingly or recklessly without any honest belief in their truth and that Lloyd's omitted information known to it about the affairs of the Lloyd's market, with the result that the Brochures and Aggregate Results/Global Reports and Accounts, taken as a whole, deliberately gave a false impression of the profitability of the Lloyd's market and the financial risks posed to Names by becoming and/or remaining a member of Lloyd's.

Particulars of Lloyd's Knowledge/Falsity/Recklessness
The Names set out particulars of Lloyd's knowledge/falsity/recklessness by reference to each of the eleven periods/years in question. 

The Names' Case Against Lloyd's as Summarised in the Pleadings
In summary the Names' case against Lloyd's is as follows.
The Names say that Lloyd's knew or was reckless as to the fact that:
(i) The Lloyd's market's exposure to asbestos-related claims (even to the extent that those liabilities could be quantified) required reserves and RITC to be set at figures far in excess of those which were set out in the Lloyd's Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87; and
(ii) To the extent that there was under-reserving, the burden would be borne by Names underwriting in future years.
It is alleged that Lloyd's knew or was reckless as to the fact that the implications of asbestos-related liabilities were such that Lloyd's ought:
(A) To have made full and proper disclosure to Names, when publishing the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87, of the estimates of the likely extent and growth of future asbestos-related claims;
(B) To have given, and repeated as appropriate, directions as to the minimum levels of reserves necessary for syndicates with any material exposure to asbestos-related claims to cater for their potential liabilities;
(C) To have given clear and appropriate directions to syndicates with any material exposure to asbestos-related claims, in relation to keeping open the 1979 and subsequent years of account, wherever such syndicates were unable to assess and quantify fairly such claims for the purposes of fixing the RITC;
(D) To have given clear and appropriate directions to underwriting agents or otherwise have ensured that full and proper disclosure was made to all Names of their syndicates' exposure to asbestos-related liabilities and the treatment by those syndicates in their accounts of their liability to such claims;
(E) To have given clear and appropriate directions to Lloyd's auditors in relation to the treatment of asbestos-related liabilities in syndicate accounts so as to ensure that inequitable or inadequate figures for RITC were not incorporated into syndicate accounts.
The Names say that Lloyd's knowingly or recklessly failed at any material time to take the above steps or any of them.
Further, it is alleged that Lloyd's knowingly or recklessly failed to respond at any material time adequately or at all to the questions and issues raised in the letter sent to it by Neville Russell on 24 February 1982. The two letters both dated 18 March 1982, one addressed to Lloyd's Panel of Auditors from Mr. Randall, the other addressed to Lloyd's underwriters from Mr. Lawrence, were recklessly and/or deliberately concealed by Lloyd's from the members' agents and thereby the Names in that they were not sent to or received by the vast majority of members' agents. Further, it is alleged that Lloyd's knowingly or recklessly took no or no adequate steps to secure that appropriate measures were taken by syndicates and/or syndicate auditors in response to the letters from Mr. Lawrence and/or Mr. Randall.
The Names say that recklessly and/or deliberately, Lloyd's failed to advise or warn Names of the nature and extent of the asbestos problem facing Lloyd's at the material times.
It is alleged that the representations derived from the Brochures and the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87 were made fraudulently in that Lloyd's published the Brochures and Aggregate Results/Global Reports and Accounts knowing or not caring that the representations contained therein were false or not caring or being reckless as to whether the representations were true or not and without any honest belief in their truth.
Alternatively it is alleged that Lloyd's fraudulently failed to correct the said representations knowing that they had become false and/or not caring or being reckless as to whether they were true or false. In so far as the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87 published by Lloyd's were aggregations of syndicate results, Lloyd's knew or were reckless as to the fact that the aggregated reserves under-reserved for the asbestos liabilities overhanging the market and failed to deal equitably with RITC. 
Further or alternatively the Names say that throughout the Relevant Period the accounts which Lloyd's published as Aggregate Results/Global Reports and Accounts were a mere aggregation of syndicate results. Lloyd's deliberately chose not to make an independent investigation and assessment of the global exposure of the Lloyd's market to asbestos-related claims (including IBNR). Instead, Lloyd's put forward as safe and reliable, year by year, figures which could not be reconciled with current claims information and closed their eyes throughout the Relevant Period to the implications for external Names.

Reliance
It is alleged that but for Lloyd's representations (derived from the Brochures and/or where appropraite the Aggregate Results/Global Reports and Accounts for the period 31.12.81 to 87) Captain Hindle/Sir William Jaffray/Mrs. Evans:
(i) Would not have proceeded to join Lloyd's as a Name and/or join any syndicates exposed to asbestos-related liabilities and/or would have resigned from underwriting business at Lloyd's; and/or
(ii) Would not have increased his/her underwriting premium limit in the years in which he/she underwrote business at Lloyd's; and/or
(iii) Would not have signed the General Undertaking effective from 1 January 1987. 
In the event and in reliance on the representations derived from the Brochures and/or where appropriate the Aggregate Results/Global Reports and Accounts for the period 31.12.81 to 87 Captain Hindle/Sir William Jaffray/Mrs. Evans took (and in the case of resignation, failed to take) all the above steps.
It is alleged that by reason of the foregoing Captain Hindle/Sir William Jaffray/Mrs. Evans suffered loss and damage.
The issues to be determined at this trial include whether each of the sample Names relied upon any of the pleaded (fraudulent) misrepresentations during the period 1978 to 1988.

Alternative Claim
The alternative claim is outside the ambit of this trial.

Allegations not made by the Names
The Names' case is confined as follows:-
(i) No allegations of fraud are made against any of the Chief Executives of Lloyd's;
(ii) No allegations of fraud are made against any non-working (i.e. nominated or external) members of the Council of Lloyd's;
(iii) No allegations of fraud are made against any employees of Lloyd's, except Mr. Randall;
(iv) Except as above, no allegations of fraud are made against any underwriters on any Lloyd's syndicate, nor against any other persons concerned in the management of such syndicate or in its year-end audit;
(v) The Names do not seek to investigate at trial the position of any particular Lloyd's syndicates or seek to show that any such syndicates wrongly closed any years of account;
(vi) The Names do not make any allegations of fraud against any panel auditors, nor do the Names seek to investigate at trial the manner in which any particular firm or firms of auditors, or individual audit partners, conducted the audit of any Lloyd's syndicate for any particular syndicate year of account;
(vii) No allegations are made that any material information was withheld from underwriters or auditors by or with the connivance of Lloyd's, save that it is alleged that Lloyd's failed to distribute the Murray Lawrence letter of 18 March 1982 to members' agents, adequately or at all.

(2) The Names' Case as Summarised in Closing Submissions
Mr. Goldblatt QC summarised the Names' case in his closing submissions as follows.
The Names' case is one in tort for fraudulent misrepresentation. They contend that Lloyd's intended to make and did make representations in its Brochures and annual Global Reports and Accounts; that those representations were not true; that it did not honestly believe them to be true; and that external Names were intended to and did rely upon them in deciding whether or not to join Lloyd's or to continue their membership of Lloyd's.

The Representations - The Brochures
Lloyd's Brochures from time to time contained statements which constituted representations to the effect pleaded, see (1) above.

The Global Reports and Accounts
The representations to be derived from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 were as pleaded, see (1) above.

The Falsity of the Representations
The Names say that these representations, made by Lloyd's, were untrue, for two principal reasons:
(i) that the market was under-reserved for asbestos-related losses; and/or,
(ii) that there were systemic problems affecting the market's ability to quantify accurately future losses for asbestosis such that the ultimate cost of the asbestos losses which would affect the Lloyd's market was not capable of quantification.
The Names say that the evidence before the Court which proves both under-reserving and radical uncertainty comes in the following forms:

Under-Reserving
(i) The document provided to the Court by Equitas under the terms of the Court's confidentiality orders.
(ii) The numerous contemporary comments and documents of individuals both within and outside Lloyd's to that effect.
(iii) The information contained in the AU38 forms. These documents also provide clear evidence of the impact of asbestos liabilities on the Lloyd's market and demonstrate that it was very considerably under-reserved for asbestos liabilities even on the syndicates' own market projections.
(iv) The charts prepared by Mr Louw on the basis of Mr Rayment's figures.

Uncertainty
(v) The numerous contemporary comments and documents of individuals both within and outside Lloyd's to that effect.
(vi) The attorneys' reports coming into Lloyd's from US attorneys were a critical source of information to all within the market. Analysis of the reports demonstrates how consistently and powerfully these attorneys' reports detailed the massive scale of the asbestos liabilities and the indeterminacy of their ultimate cost both globally and to Lloyd's. One key feature of the attorneys' reports to be borne in mind is that, as Attorney H reported on 20/1/83:
'The Working Party wish to draw the Market's attention to the fact that no allowance is made for IBNR, due to the many uncertainties that exist'.
This remained the position throughout the Relevant Period, Attorney H reporting on 24/8/87 that:
'It is extremely difficult for us to provide any reliable advice as to how the asbestos problem is likely to develop over the ensuing years except to the extent that it now appears that the total insurance limits of most insureds could be consumed by this enormous problem'.

Knowledge
The Names say that the knowledge of relevant individuals of this under-reserving and uncertainty is proved by a variety of forms of evidence before the court:
(1) The attorneys' reports coming into Lloyd's from US attorneys, were a critical source of information to all within the market. 
(2) Contemporary comments during the course of the Relevant Period by individuals amongst the 33 and other documentary evidence indicating their knowledge. The evidence of the key witnesses called by Lloyd's from amongst the 33, (Mr. Murray, Mr. Murray Lawrence, Sir Peter Miller, Mr. Kellett, Mr. Jackson and Sir David Rowland) was partial. Their purported lack of memory of key events and documents was unconvincing as were their attempts to explain away damaging documents.
(3) The inferences to be drawn in respect of those witnesses Lloyd's chose not to call.
(4) The critical period during the Relevant Period when the documentary evidence most clearly demonstrates such knowledge is from the latter half of 1981 to the first half of 1982. A key event within this period was the discussion of and issue of the Murray Lawrence letter by the Committee of Lloyd's. A further significant aspect of the Names' case relates to the restricted circulation of this letter. The Names say that the evidence points to a restricted circulation of the letter; to members' agents as a general body not receiving it as they ought to have done; and to Mr. Lawrence and/or Mr. Randall as being those most likely to be responsible for that restricted circulation. 
(5) The charts prepared by Mr. Louw and the evidence of Mr. Sturge on the 'feel' which a simple set of calculations would have given the market are also relevant. A 'back of the envelope' exercise was a straight-forward means of gaining a 'feel' for what order of exposure to asbestos Lloyd's had. Whilst it may be crude, it would certainly give such a feel and it is inconceivable that many of those at the heart of Lloyd's with knowledge of the market and of asbestos did not gain such a 'feel' themselves. The documentary evidence makes it plain that Mr. Nelson for one did precisely that.
The Names say that Lloyd's is fixed with the knowledge of these relevant individuals and hence liability for the misrepresentations because:
(i) In the course of the formal decision to publish the representations complained of there were people at Lloyd's who failed to speak out. These people were, or were amongst, the 33 against whom the Names allege fraud. Those with guilty knowledge who withheld it were the primary representatives of Lloyd's in relation to the critical omission (in failing to include a 'health warning' or qualification to the Brochure/ Global Reports and Accounts).
(ii) Those responsible for the content of the statements from the Chairmen of the Society and of the Market Associations of Lloyd's were amongst those identified above. (a) Such individuals acted as, or were held out as, agents for Lloyd's in making these statements. (b) These individuals were the primary representatives of Lloyd's in relation to the making of these statements. Either (a) or (b) is sufficient to fix their knowledge upon Lloyd's.
8. LLOYD'S CASE
Mr. Aldous QC for Lloyd's summarised Lloyd's case in his closing submissions as follows.
Many of the original allegations which may have encouraged some Names to reject the R&R proposals and to sue Lloyd's have been shown to be unreliable or are now abandoned. 
The Names have adopted an inconsistent position concerning the Lloyd's market's reserving for asbestos and pollution. Further, in instituting these proceedings, the Names seem to have been unaware of: 
(i) the extent of information about asbestos which was available to all syndicates and the role of the AWP in distributing up to date information across the market;
(ii) the extensive information about asbestos which was provided to panel auditors annually; 
(iii) quite how the asbestos problems increased in ways which were not predicted within Lloyd's and the insurance market generally; and 
(iv) the underwriting activities of many of the 33, including their personal underwriting, which were inconsistent with their alleged dishonesty.
It is essential to have regard to the context in which the allegations are said to have occurred:
(a) In considering the Names' allegations, it is of assistance to look at other events in the Relevant Period and see the attitude and approach of those accused of fraud, the atmosphere of the times and the views of external bodies who looked at the structure and governance of the Lloyd's market. During the Relevant Period there was a process of vigorous regulatory reform, the aim or purpose of which (better disclosure, new accounting standards etc) was the very antithesis of the allegations of concealment of and a connivance in under-reserving. There were also two independent inquiries into the regulation of the Lloyd's market, which did not disclose any of the failings in the Lloyd's system which it is now alleged were known to the 33 at the time, and whose recommendations were implemented with efficiency and zeal. There were crises which demanded urgent attention and response - such as the "scandals" of 1982 and the PCW affair - which were responded to by Lloyd's in a serious and open manner. 
(b) The Relevant Period (11 years) cannot be approached as though it is a single or unified event. Perceptions, concerns and preoccupations altered as opinions were changed by developing events and the different perspective which they gave. In addition new issues emerged which demanded urgent attention. Market conditions and outlook also changed: there were periods when market conditions engendered real optimism for the future (in particular the period 1985 to 1987).
The Names' case is founded upon allegations of fraudulent misrepresentation contained in the various Brochures issued by Lloyd's during the Relevant Period and Global Reports and Accounts of market results.
(i) The Brochures and Globals were prepared and reviewed with considerable care to ensure their accuracy and published with the approval of the Committee or Council. The LUNMA Chairmen's statements were not produced or prepared by Lloyd's, but by the LUNMA Chairmen without interference. 
(ii) The implied representations which the Names allege cannot be found in the Brochures. The contrived implications relied upon are a disguised attempt to impose regulatory obligations on Lloyd's which the Courts (in the Ashmore and Clementson decisions) have previously held do not arise. The contrived nature and content of these representations reflects the real heart of the Names' complaint, a claim of alleged regulatory failure by Lloyd's. To circumvent section 14(3) of the Lloyd's Act, the Names have sought to force this claim into a case of fraudulent misrepresentation for alleged breaches of obligations which the Court (having read the Brochures) had previously held Lloyd's had not agreed to undertake. Moreover the Names have no justifiable complaint against Lloyd's for alleged regulatory failure.
(iii) The collegiate nature of the decisions of the Committee and Council to publish the Brochures and the Globals is important when considering the test for attributing a particular state of mind to Lloyd's in relation to those documents. In order to establish that that state of mind was dishonest, it is necessary for the Names to show that the majority of the body who approved and made the decision to publish the Brochure or Globals had such a state of mind. In relation to the Chairman of Lloyd's statement, the Chairman had no authority to include a statement in the Globals without consideration and approval of the Committee (for the 1981 to 1984 years of account) and the Council (for the 1985 to 1987 years of account). His statement was a commentary on the results in the form in which the Committee/Council had approved them and cannot sensibly be separated out from those Global results when considering the issue of attribution. Again, therefore, it is necessary for the Names to establish that a majority of the Committee/Council were aware that the Chairman's statement was untrue or were reckless as to the same. In those areas where the Chairman's statement expressed his own view, it is necessary to show that the majority of the Committee/Council (as appropriate) were aware that the Chairman did not hold such an opinion.
(iv) The LUNMA Chairmen's statements were not statements made by or on behalf of Lloyd's, but individual statements by the Chairmen of one of the market associations. In order to establish that Lloyd's acted dishonestly in relation to the publication of such a statement, the Names would have to show both that the relevant individual had a dishonest state of mind in relation to the contents of his statement, and that a majority of the body approving publication were likewise acting dishonestly in publishing it. 
There are a number of features of the Names' case which make an analysis of the structure of the Lloyd's market, and of the respective roles of Lloyd's, the managing agents, the members' agents and the auditors within that market, of crucial importance:
(a) The Names are forced to look for contrived representations in two types of document only, the Brochure and the Globals, because of the very limited interaction between Lloyd's and applicants or Names (the Name's principal relationship and channel of communication being with his/her underwriting agents, members' and managing). 
(b) The representations alleged seek to fix Lloyd's with obligations (such as the obligation to advise Names) which are properly the members' agents responsibilities. The allegation that Lloyd's "turned a blind eye" by not conducting some form of macro-reserving project or second-guessing syndicates' audited results, is an attempt to impose on Lloyd's an obligation to perform the functions of managing agents and auditors.
(c) The allegations of fraud against Lloyd's are not premised upon any suggestion that Lloyd's had access to special information or insight not available to the participants in the market, be they managing agents, their auditors or members' agents (indeed the Council and Committee consistently had less knowledge than the market about asbestos).
(d) If the Names' allegations are factually correct, then it would follow that each managing agent of a syndicate exposed to asbestos-related claims, each firm of panel auditors concerned with such a syndicate, each members' agent advising Names on syndicate selection, and the DTI as the overall regulator of the insurance industry, should have drawn similar conclusions to those which the Names allege Lloyd's should have drawn. It would equally follow that each of these bodies, in their own conduct throughout the Relevant Period, also acted dishonestly, and "turned their back" on the obvious. The Names' case requires an acceptance of extensive dishonesty throughout the market and of all the bodies operating in that market; an entirely improbable state of affairs which the Names have not sought to assert, still less to prove. It entails the suggestion either that there was the (improbable) coincidence of a series of unconnected and individually dishonest acts which ensured that no single group revealed the dishonesty of any other group, or that the dishonest acts were somehow connected and inter-dependent (the grand conspiracy theory).
(e) This is also true of members of the Council and Committee who are not accused of dishonesty (including the two Chief Executives, the many working members of the Council against whom no allegations of fraud are made, and external and nominated members of the Council) and the many members of the Corporation staff against whom allegations of fraud have not been made, such as Mr Tony Parkington, Mr Simon Tovey, Mrs Catherine Stynes and Mr Alan Pollard. 
(f) The evidence establishes that the solvency and audit system was perceived by Lloyd's to be operating properly during the Relevant Period. At no stage during the Relevant Period did the regulatory system signal that the process by which managing agents and auditors participated in establishing reserves was one which could no longer safely be relied on. On the contrary, through the increases in reserves seen in response to a deteriorating claims situation and the increasing number of open years, the system worked. The accounting reforms and developments implemented during the Relevant Period included the introduction of a requirement of true and fair accounting, the production of the Audit Manual, the publication of the Audit Brief and the on-going introduction of new firms onto the auditors' panel.
The argument that Lloyd's turned its back on under-reserving is premised on an allegation that Lloyd's perceived during the Relevant Period that the scale of asbestos claims was so great and their final number so uncertain that either reserves could not equitably be set, or the total of reserves established by the Lloyd's market was perceived to be manifestly insufficient based on some form of "back of the envelope" calculation. To support their allegations, whilst eschewing an allegation of fraud against the AWP in the order of 1 July 1999, the Names have alleged that the AWP decided that attorneys should not make reserve recommendations which reflected future projections and claims. Various quotations have been culled from reports and periodicals to support the allegation that asbestos was perceived as a claim which was too uncertain to permit reserves to be equitably set; and crude "macro" calculations have been put forward of the Lloyd's market's share of outstanding and future asbestos claims. 
Lloyd's submits:
(i) The AWP was a market body whose members did their best to ensure that asbestos claims received the serious attention which they deserved, and that syndicates had access to the most accurate and up-to-date information available. Issues relating to IBNR were left to individual syndicates to determine, utilising that information in the context of their individual books of business and protections. The Committee of Lloyd's did not attempt to influence the form in which reserve advices were produced.
(ii) The insurance industry did not foresee the scale of asbestos claims which were eventually to come. Insurance companies throughout the world and Lloyd's syndicates believed that exposure to asbestos claims could be fairly reserved for. These reserves were later shown to be inadequate because of the unforeseeable manner in which asbestos claims continued to develop, with new classes of claims and new categories of assureds emerging. This deterioration did not present itself as a continuing and inevitable event, but as a series of developments which, as they occurred were factored into reserving calculations, but which did not themselves presage the further deterioration to come.
(iii) This perception of asbestos claims was not limited to the insurance industry, but extended to other bodies which made judgments as to the future number of claims. The views that assureds such as Johns Manville formed when settling coverage disputes, and which the US Bankruptcy Court formed when approving the Johns Manville reorganisation, were shown by hindsight to be equally inadequate, but were arrived at in good faith and were regarded as a proper foundation on which to take important decisions at the time.
(iv) The Names rely on figures from the Califano statement, Dr Selikoff's research and the Commercial Union and MacAvoy reports, but have chosen not to rely on reports such as Conning and Munich Re. The figures which the Names rely on were regarded as at the outer fringes of contemporary statements of view, and remain so even with hindsight. The development of claims numbers during the Relevant Period was not consistent with the problem being one of the scale suggested by these figures. Many sources in the world insurance industry and amongst producers believed in the early 1980's that the likely total of claimants would be of the order of 40-50,000. Even towards the end of the Relevant Period, when matters had deteriorated considerably, the likely total was viewed as one in the 80,000-100,000 range.
(v) The Names' allegation that Lloyd's could and should have performed a "back of the envelope" calculation which would have revealed that the Lloyd's market was under-reserved for asbestos claims is misconceived. No witness with relevant expertise agreed that such an exercise could be performed, nor is there any evidence that anyone either made such a calculation, or believed that it could be made, at the time. Where it has been possible to test the figures for Lloyd's share of known outstanding claims put forward by Mr Louw, it is clear Mr Louw's figures wildly over-state the position.
The Names' allegations as to the various steps which Lloyd's should have taken during the Relevant Period are premised on a fundamental misconception of the nature of the Lloyd's regulatory role, and the fundamental distinction between that role and the executive, managerial, advisory and auditing role performed by agents and auditors.
The allegation that Lloyd's engaged in a strategy of recruiting Names or encouraging existing Names to increase their capacity in order to meet asbestos losses (the recruit to dilute allegation) was misconceived. The evidence establishes that the Lloyd's market capacity grew in response to external market factors, that growth was spread across different sectors of the Lloyd's market, and that Lloyd's competitors also grew to a similar or greater degree at this time. 
The Names' allegation that MPRs were deliberately set at too low a level in order to encourage under-reserving should be rejected. The allegation misunderstands the purpose of MPRs and the alternative reserving tests almost universally applied to long-tail business. The proposed MPRs, and the market settlement statistics which were collected to assist in establishing the MPRs, were widely distributed to the DTI, the auditors and the market associations for comment and review and were initially suggested by Corporation staff. Again the allegation that MPRs were set deliberately too low entails allegations of dishonesty against many other persons and bodies. 
The events of the pivotal period demonstrate an honest and entirely proper regulatory response to the issue of reserving for asbestos claims. Important and useful information was provided by Lloyd's to underwriting agents and to auditors to assist them in the audit. The auditors' concerns in the Neville Russell letter were treated with due seriousness, and received a proper response in the form of the Murray Lawrence letter. The evidence establishes that the Committee intended that that letter should be sent to all underwriting agents (members' and managing agents) and panel auditors; that it was so sent; and that thereafter asbestos was dealt with through the terms of the Audit Instructions and the annual meeting with panel auditors at which Lloyd's arranged for a member of the market body concerned with asbestos claims (the AWP), to give an up-date on the development of these claims. After the Murray Lawrence letter was sent, there was no occasion on which the auditors repeated the concerns they had expressed in the Neville Russell letter about the manner in which some syndicates were reserving for asbestos claims. 
As to the Outhwaite syndicate, the existence of the run-off market in which this highly regarded syndicate was so heavily engaged, and the way in which different syndicates responded to that market, confirms that the perception of the future development of asbestos claims in the early 1980s was very different to that for which the Names contend. The series of events by which the Outhwaite 1982 year came to be left open in early 1985 reveal the proper working of the Lloyd's audit and agency system. Lloyd's did not acquire any information or insight from its involvement with the Outhwaite syndicate, whether in 1985 or thereafter, which suggested that there were any widespread problems in the audit system.
The PCW settlement of 1986/1987 confirms that even in the most difficult of circumstances, it was believed that equitable reserves could be established for syndicates with significant asbestos exposures. The subsequent deterioration of the syndicates' run-off reflects the unforeseen developments in asbestos and pollution claims. Nominated members of the Council and senior members of Corporation staff such as Mr Lord were intimately involved in the Council's consideration of the affairs of the PCW syndicates and did not themselves draw the conclusion that there was any problem with the audit regime.
As to the Names' allegation that Lloyd's should have warned Names in Rota of the risks posed by syndicates touched by asbestos, the Rota interview was the culmination of an extended admission process. Its limited purpose was to verify that the Name's agent had explained the fundamental features of membership to Names. It was not the context in which advice could be given, nor did this form part of the Rota Committee's role.
As to the Inland Revenue investigation into rollover policies and rollover policies themselves, the investigation was premised on the allegation that the Lloyd's market was over-reserved and seeking to defer the payment of taxable profit. Rollover policies (which in the vast majority of cases did not involve any impropriety on the part of the underwriters who took them out) evidenced the desire of syndicates to protect their Names against any risk of catastrophe claims or claims from the old years which had not been foreseen and for which no specific reserve had been allocated.
As to certain conspiracy theories which the Names have advanced during different stages of this trial (the allegation that the Bank of England sent Lloyd's a copy of a letter warning of "asbestos Armageddon" and the exposure of clearing banks to the Lloyd's market in 1982; the allegation that a secret Lloyd's department or committee, FOLDRUG, was monitoring the market's exposure to asbestos claims; and the allegation that Lloyd's had destroyed copies of Ian Hay Davison's book), each of these allegations is misconceived. 
As to the allegations of reliance by the three sample witnesses, the claim that these Names either perceived or relied upon the representations alleged to be contained in the relevant Brochure or Global Reports and Accounts has not been substantiated. These Names have not even established that they received and considered the documents in question, still less that they understood them to make the representations pleaded, and relied on such representations. The evidence suggests that the Names relied on the advice of their members' agents.

9. THE RELEVANT LEGAL PRINCIPLES

The Tort of Deceit
The relevant legal principles as to the tort of deceit are as follows:-
(1) In order to sustain an action in deceit, there must be proof of fraud. Nothing short of fraud will suffice. Fraud is proved where it is shown that a false representation has been made
(i) knowingly, or
(ii) without belief in its truth, or
(iii) recklessly, careless whether it be true or false.
To prevent a false statement from being fraudulent, there must be an honest belief in its truth. (Lord Herschell in Derry v Peek (1889) 14 App. Cas. 337 at 374).
(2) It is not necessary that the maker of the statement was "dishonest" as that word is used in the criminal law. The relevant intention is that the false statement shall be acted upon by a person to whom it is addressed. If the false statement was made knowingly and that intention is proved, then the basis for liability for the tort of deceit is established. That conduct and state of mind was described as "dishonest" in Derry v Peek and may also be called "fraudulent"; but that is not necessarily using those words in their criminal sense. (Standard Chartered Bank v Pakistan National Shipping Corporation (No.2) [2000] 1 Lloyd's Rep. 218 at 224, Evans LJ).
(3) The misrepresentation which is necessary to found an action in deceit must be a representation as to a past or existing fact (Clerk & Lindsell on Torts, 17th Edition para 14-05).
(4) In order to give a cause of action in deceit, not only must the statement complained of be untrue to the defendant's knowledge, it must be made with intent to deceive the plaintiff, with intent that it shall be acted upon by him/her (Clerk & Lindsell supra 14-29 and the cases there cited). Thus to establish liability in deceit it is incumbent on the representee to show that the representor intended his statement to be understood by the representee in the sense in which it was false (Goose v Wilson Sandford, CA 14.3.2000).
(5) For a plaintiff to succeed in the tort of deceit it is necessary for him/her to prove that (i) the representation was fraudulent, (ii) it was material and (iii) it induced the plaintiff to act (to his/her detriment). A representation is material when its tendency, or its natural and probable result, is to induce the representee to act on the faith of it in the kind of way in which he/she is proved to have in fact acted. The test is objective. Inducement is a question of fact. (Downs v Chappell [1997] 1 WLR 426 at 433, Hobhouse LJ).
(6) In considering whether the elements of the tort of deceit have been established the relevant standard of proof is as follows:- the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence (Goose v Sandford supra citing the statement of Lord Nicholls of Birkenhead in Re H and Others (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563).

In What Circumstances Could Lloyd's be Held Liable in Deceit?
1. The preamble to the Lloyd's Act 1982 stated as follows. By the Lloyd's Act 1871 certain persons were united into a society or corporation for the purposes of that Act and were incorporated by the name of Lloyd's and various powers were conferred upon the Society by the 1871 Act. The 1871 Act established the Committee of Lloyd's to have the management and superintendence of the affairs of the Society and to exercise all the powers of the Society (except as otherwise provided), subject to control and regulation by a general meeting of the members of the Society. By the 1871 Act the members of the Society in general meeting were empowered to make byelaws for the purposes provided in the Act and generally for the better execution of the Act and the furtherance of the objects of the Society. Further powers were conferred on the Society and on the members of the Society in general meeting by Lloyd's Acts 1911, 1925 and 1951. It was no longer practical or expedient for the members of the Society to exercise in general meeting the powers reserved to them by the 1871, 1911, 1925 and 1951 Acts. It was expedient in order to enable the Society to regulate the management of its affairs that (a) there should be established a Council of Lloyd's to have control over the management and regulation of the affairs of the Society; (b) the Council should have power to make byelaws for the purposes of such management and regulation, including byelaws making provision for and regulating the admission, suspension and disciplining of members of the Society, Lloyd's brokers, underwriting agents and others; and (c) certain provisions in the Lloyd's Acts 1871 to 1951 should be amended or repealed.
The 1982 Act provided for the Council (section 3),the Chairman and Deputy Chairmen (section 4), the Committee (section 5) and the powers of the Council and of the Committee (section 6).
Section 14(1) of the 1982 Act exempted the Society from liability in damages at the suit of a member of the Lloyd's community (as defined in section 14(2)).
Section 14(3) provided that:-
"Subject to subsections (1), (4) and (5) of this section, the Society shall not be liable for damages whether for negligence or other tort, breach of duty or otherwise, in respect of any exercise of or omission to exercise any power, duty or function conferred or imposed by the Lloyd's Acts 1871 to 1982 or any byelaw or regulation made thereunder -
(a) insofar as the underwriting business of any member of the Society or the costs of his membership or the business of any person as a Lloyd's broker or underwriting agent may be affected; or
(b) insofar as relates to the admission or non-admission to, or the continuance of, or the suspension or exclusion from, membership of the Society; or
(c) insofar as relates to the grant, continuance, suspension, withdrawal or refusal of permission to carry on business at Lloyd's as a Lloyd's broker or an underwriting agent or in any capacity connected therewith; or
(d) insofar as relates to the exercise of, or omission to exercise, disciplinary functions, powers and duties; or
(e) insofar as relates to the exercise of, or omission to exercise, any powers, functions or duties under byelaws made pursuant to paragraphs (21), (22), (23), (24) and (25) of Schedule 2 to this Act; 
Unless the act or omission complained of - 
(i) was done or omitted to be done in bad faith; or
(ii) was that of an employee of the Society and occurred in the course of the employee carrying out routine or clerical duties, that is to say duties which do not involve the exercise of any discretion."
Section 14(6) provided that for the purposes of section 14 "the Society" means the Society itself and also any of its officers and employees and any person or persons in or to whom (whether individually or collectively) any powers or functions are vested or delegated by or pursuant to Lloyd's Acts 1871 to 1982. 
2. The rules of attribution.
Who were the persons so centrally concerned with the relevant parts of Lloyd's operations (the Brochures and the Globals) that (for the purposes of the tort of deceit) their acts etc are to be deemed to be those of Lloyd's? 
In Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506 Lord Hoffman having referred to the phrase "directing mind and will" said:-
"Any proposition about a company necessarily involves a reference to a set of rules. A company exists because there is a rule (usually in a statute) which says that a persona ficta shall be deemed to exist and to have certain of the powers, rights and duties of a natural person. But there would be little sense in deeming such a persona ficta to exist unless there were also rules to tell one what acts were to count as acts of the company. It is therefore a necessary part of corporate personality that there should be rules by which acts are attributed to the company. These may be called "the rules of attribution."
The company's primary rules of attribution will generally be found in its constitution, typically the articles of association... There are also primary rules of attribution which are not expressly stated in the articles but implied by company law...
These primary rules of attribution are obviously not enough to enable the company to go out into the world and do business. Not every act on behalf of a company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and by vicarious liability in tort. ...
The company's primary rules of attribution together with the general principles of agency, vicarious liability and so forth are usually sufficient to enable one to determine its rights and obligations. In exceptional cases, however, they will not provide an answer. This will be the case when a rule of law, either expressly or by implication, excludes attribution on the basis of the general principles of agency or vicarious liability. For example, a rule may be stated in language primarily applicable to a natural person and require some act or state of mind on the part of that person "himself", as opposed to his servants or agents. This is generally true of rules of the criminal law, which ordinarily impose liability only for the actus reus and mens rea of the defendant himself. How is such a rule to be applied to a company?
One possibility is that the court may come to the conclusion that the rule was not intended to apply to companies at all... Another possibility is that the court might interpret the law as meaning that it could apply to a company only on the basis of its primary rules of attribution, i.e. if the act giving rise to liability was specifically authorised by resolution of the board or an unanimous agreement of the shareholders. But there will be many cases in which neither of these solutions is satisfactory; in which the court considers that the law was intended to apply to companies and that, although it excludes ordinary vicarious liability, insistence on the primary rules of attribution would in practice defeat that intention. In such a case, the court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy."
3. The general approach to the rules of attribution set out in 2 above applies to Lloyd's, when considering whether anything was "done or omitted to be done in bad faith".
4. The principles of agency. Liability for a tort committed by an agent. 
A company is liable to be sued for a tort committed by its agent if an action in tort would lie against an individual and the agent is acting in the course of his employment or within the actual or ostensible scope of his authority, and the act complained of is one which the company might possibly be authorised by its constitution to commit. (Halsbury's Laws of England, 4th edition, volume 7(2), Companies, paragraph 1120 and the cases there cited. See further Bowstead & Reynolds on Agency, 16th edn. 8-177 and Armagas Ltd v Mundogas S.A. (The Ocean Frost) [1986] AC 717).
5. The Names' case is summarised in chapter 7 above. Lloyd's deny that the alleged representations are to be derived from the Brochures and from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 87. Further, Lloyd's deny that anything was done or omitted to be done in bad faith.
6. The Brochures up to and including the Brochure dated December 1981 were issued by the Committee. The Brochure dated December 1983 and subsequent Brochures were issued by the Council. The approval of the Brochures was a collective or collegiate act of the Committee/Council (although other persons and bodies contributed to the drafting).
7. If (contrary to my findings in this judgment) all other ingredients of the tort of deceit were made out, in the case of the Brochures whose act, knowledge and state of mind would count as the act etc of Lloyd's?
Lloyd's submits that the rule of attribution to be applied is the majority test accepted by the House of Lords in Jones v Swansea [1990] 3 All ER 737, i.e. the majority of the Committee/Council.
The Names submit that if any one member of the Committee/Council with expertise in the non-marine market had the requisite knowledge and intention, that would be sufficient. Further, the Names submit that any of the 33 persons who approved the particular Brochure would have had the necessary knowledge and intention.
8. The Aggregate Results for the year ended 31.12.81 and the Globals for the years ended 31.12.82 to 31.12.84 were approved by the Committee. The Globals for the years ended 31.12.85 to 31.12.87 were approved in draft by the Council, although approval of the final version was delegated to the Committee. Other persons and bodies contributed to the preparation of the Aggregate Results/Globals.
9. If (contrary to my findings in this judgment) all other ingredients of the tort of deceit were made out, in the case of the Aggregate Results/Globals whose act, knowledge and state of mind would count as the act etc of Lloyd's? If (contrary to my findings) the Chairman's statement contained a fraudulent misrepresentation to the knowledge of the Chairman, would Lloyd's be liable in respect thereof? 
A distinction must be drawn between (i) the Chairman's statement (ii) the Chairman of LUNMA's statement and (iii) the figures/results. 
Lloyd's submits that in relation to (i) it would be necessary to show that the relevant Chairman and a majority of the Committee to y/e 31.12.84/of the Council from y/e 31.12.85 lacked an honest belief in the truth of what was said (it would not be sufficient if the Chairman's statement contained a fraudulent misrepresentation to the knowledge of the Chairman, because what he said had to be approved by the Committee/Council); in relation to (ii) any dishonesty by any LUNMA Chairman would not be attributable to Lloyd's; in relation to (iii) it would be necessary to show that a majority of the Committee to y/e 31.12.84 and of the Council from y/e 31.12.85 lacked an honest belief in the truth of what was said.
The Names submit that in relation to (i) it would be sufficient to show that the relevant Chairman lacked an honest belief in the truth of what was said or (if the Chairman believed in the truth of what was said) that any one member of the Committee with the expertise in the non-marine market had the requisite knowledge (of falsity) and intention, and was in a position to cause the Chairman to correct his statement, and failed to do so; in relation to (ii) and (iii) if any one member of the Committee with expertise in the non-marine market had the requisite knowledge and intention, that would be sufficient. Further, the Names submit that any one of the 33 persons who approved the relevant Aggregate Results/Globals would have had the necessary knowledge and intention.
10. In the light of my findings in this judgment, the questions set out in paragraphs 7 and 9 above do not arise. If they had arisen in my opinion:-
(a) it would first be necessary to identify the false statement and where it was made;
(b) in the particular circumstances of this case identified in paragraphs 6 and 8 above, it would probably be necessary for the Names to establish the requisite knowledge and intention on the part of a majority of the members of the Committee/Council. Further in practical commercial terms it is most unlikely that the requisite knowledge and intention could be made out unless a majority of the members of the Committee/Council had such knowledge; and
(c) any dishonesty by any LUNMA Chairman in the Aggregate Results/Globals would not be attributable to Lloyd's.

10. THE ADMINISTRATIVE STRUCTURE AND GOVERNANCE OF THE LLOYD'S MARKET
The following account of the Administrative Structure and Governance of the Lloyd's market is drawn from a statement of agreed facts. Where I have decided a matter in dispute between the parties this is shown in square brackets.

A. INTRODUCTION
I set out below the governance and administrative structure of the Lloyd's market and identify the functions of particular committees, sub-committees, departments and personnel over the Relevant Period and of the various participants in the Lloyd's market. 

B. THE OPERATION OF THE LLOYD'S MARKET GENERALLY

Structure of the Lloyd's Market
The Society and Corporation of Lloyd's regulates and provides services to an insurance market (the Lloyd's market) comprising individual underwriting members known as Names. All underwriting members appoint underwriting agents, registered and regulated by Lloyd's to conduct insurance business on their behalf. Names underwrite insurance through their agents on a several basis for their own profit or loss. 
By the Lloyd's Act of 1982 the constitution of the Society was refashioned and a new Council was created, equipped with wide powers to regulate the conduct of the practitioners in the market and to provide protection for the policyholders whose risks are insured and for the Names who underwrite those risks. 
[Prior to the Lloyd's Act 1982 more restricted functions were carried out by the Committee of Lloyd's as reflected in the Fisher Report.]

The Nature of the Lloyd's Market
Lloyd's is an insurance market in which underwriting members (the Names) provide insurance cover for policyholders (the assured). The Names operate through underwriting agents who have complete authority to act on their behalf in dealing with brokers, the agents of the assured. Underwriting members at Lloyd's can be categorised according to whether they are, or have been substantially involved in the market as agents or brokers or their employees (the working Names), or whether they have no professional involvement (the external Names).
The way in which a Name puts his or her wealth at risk at Lloyd's in providing insurance cover is as follows. He/she has to demonstrate that he/she possesses sufficient capital appropriately invested. These investments and the returns on them constitute reserve capital which is called upon only if, as a result of the underwriting carried out on his/her behalf, the premiums received from the assured (and any amounts derived from the reinsurance of the risks underwritten) do not cover claims from policyholders. In the event that his/her capital is called, the Name's liability is unlimited; he/she is liable, if necessary, to sacrifice his/her entire personal fortune to pay valid claims, even if in total they go far beyond the amount originally declared. This is one of the two fundamental principles of membership of Lloyd's. The other is that Names underwrite on the basis of 'each… for his/her own part and not for another'… If a Name suffers a loss he/she cannot call on other members to share it, nor can they call on him/her to share theirs. Likewise he/she is not called upon to share his/her profits.
Although Names are sole traders, the effective operation of the market demands that they underwrite in groups, or syndicates, of varying sizes. Syndicates are grouped principally into four main markets (marine, non-marine, aviation and motor). Syndicates enable members to co-operate in underwriting risks, or proportions of risks, which would be too large for an individual to cover and they permit most of the participants to leave the actual business of underwriting to one or more working members acting on behalf of the whole syndicate. But syndicates themselves have no separate corporate status. Each member contracts directly or indirectly with his/her underwriting agent that he/she will be responsible for only a percentage of the syndicate's underwriting business, known as his/her 'line' which may vary from year to year.
There have evolved two distinct types of underwriting agent. The organiser and manager of one or more syndicates is known as a managing agent. The day to day management of each syndicate is carried out by a main (or 'active') underwriter who is an employee (and often a director or partner) of the agency. It is the active underwriter and his team who accept risks on behalf of syndicate members, receive premium income and settle claims.
The managing agent does not recruit syndicate members directly save in the case of a combined agency. That is the task of another type of agent, the members' agent, who introduces prospective Names to Lloyd's, advises them on syndicate membership and acts as an intermediary between Names and managing agents. The latter agree with members' agent that they will make available specified amounts of syndicate capacity which those members' agents can then allocate to individual Names. 
The Society of Lloyd's was formed in 1811 and incorporated by an Act of Parliament as the Society and Corporation of Lloyd's. The objects of the Society are as follows:
(i) The carrying on by members of the Society of the business of insurance of every description including guarantee business;
(ii) The advancement and protection of the interests of members of the Society in connection with the business carried on by them as members of the Society and in respect of shipping and cargoes and freight and other insurable property or insurable interests or otherwise;
(iii) The collection, publication and diffusion of intelligence and information;
(iv) The doing of all things incidental or conducive to the fulfilment of the objects of the Society. (Section 4, Lloyd's Act 1911).
The Society does not itself underwrite insurance. 
Active underwriters at Lloyd's must be members of the Society and, with certain limited exceptions, brokers must be approved by the Society in order to place business with Lloyd's underwriting agents on behalf of their clients.

Underwriting Members or Names
A Name is the 'insuring entity' that underwrites risk in the market through participation in syndicates and that earns the underwriting profit or sustains the loss. Each Name trades individually for his or her own account. In order to be eligible to underwrite insurance at Lloyd's, an individual must apply and be accepted as a member.
The amount of business a Name is permitted to underwrite is circumscribed by the level of resources placed at Lloyd's and is referred to as an Overall Premium Limit. (The premium limit is based on a multiple of the membership means requirement). This does not, however, apply to premiums received for reinsurance to close earlier years of a syndicate on which the Name is placed, where the placing and receiving syndicate are substantially similar. 
During the Relevant Period:
(i) changes were made in relation to deposits and assets to be shown by Names; and 
(ii) there were distinctions, in relation to means and deposit requirements, between working members and external members.
As a result of recommendations by the Bird Working Party in 1984, Names were required to "come into line" with any new deposit and means requirements introduced since they joined.

Syndicates
Names underwrite in groups called syndicates. A syndicate aggregates the underwriting capacities allocated to it by individual Names. It has no legal status or personality independent of the Names. Most Names allocate capacity to a number of different syndicates. Each Name underwrites risk though a managing agent aggregating the underwriting capacities of the various Names who appoint him/her, so that larger risks may be accepted. Names trade on the basis of several liability and so are not responsible for the liabilities of other Names within the syndicate. 
Names underwrite through syndicates which write business allocated to a single calendar year (known as the year of account). Syndicates are reconstituted at the beginning of each year with a membership which may well differ, at least to some degree, from the previous year. The syndicates are therefore sometimes described as annual ventures. The outstanding liabilities of a particular year of account of a syndicate are reinsured at least 2 years after the end of the year of account, usually by the next succeeding year of account of the same syndicate. This reinsurance is known as reinsurance to close. Accordingly, the management of a syndicate's business is effectively an ongoing venture, carried out by a managing agent.
According to the practice at Lloyd's, every year of account of a syndicate is kept open for not less than three years from the beginning of that year of account. A year of account begins on 1 January of each year. At the end of three years, a year of account may (but need not) be closed into a later (usually the next oldest open) year of account, by means of a contract known as a Reinsurance to Close. 
The management and underwriting of Names' insurance business is carried out on their behalf by the managing agents of the syndicates in which they participate. A managing agent employs underwriting and administrative staff (including the active underwriter) who run the syndicate's business from year to year. The services provided by the underwriter can include general management, accounting, business development, computer services and other shared services. The cost of the services so provided is charged to the members of the syndicate as part of the costs of underwriting. In addition, the managing agent charges a fee, based on the capacity allocated to the syndicate by each Name, and receives a profit commission on the syndicates' profits. 
The following were among the principal features of a syndicate:
(i) Working members were entitled to be, and often were, Names on the syndicates for which they worked;
(ii) Clause 5 of the Standard Agency Agreement scheduled to the Agency Agreements Byelaw No 1 of 1985 provided that: "The Agent shall have the sole control and management of the underwriting business and the Name shall not in any way interfere with the exercise of such control or management." This provision reflected the contractual provision that prevailed prior to Byelaw No. 1 of 1985;
(iii) The active underwriter was a key figure in a syndicate.
Most managing agents are now limited companies (one or two are partnerships), which are privately owned or, in a few cases, publicly quoted. Prior to the divestment process required by Lloyd's Act 1982, some of the managing agencies were owned by Lloyd's brokers but, as result of the divestment requirements, the brokers were required to dispose of their interests in the managing agents (and vice versa). See further paragraphs 12.03 to 12.07 of the Fisher Report. A period of five years was allowed for the process of divestment.
Active underwriters were required by paragraph 21 of the Underwriting Agents Byelaw (No. 4 of 1984) to be directors of the managing agency.
There were three types of agent. Originally, the managing agent fulfilled the role of introducing new Names to the market and managing their affairs as underwriting members. Over the past 30 years, a second category of agent has evolved within the Lloyd's market: the members' agent, whose function was to introduce new Names and advise them on syndicate selection and other issues. 
Some members' agents operate, so far as Lloyd's agency functions are concerned, exclusively as members' agents. Some of these agents are part of broking groups, who were able to retain ownership of members' agencies when they were required to sell off their managing agencies by the divestment provisions of Lloyd's Act 1982. Other members' agents are owned by, or are members of a group that includes, a managing agent in which case they and the managing agent are referred to as combined agents. 
Divorce of managing and membership functions was voted on prior to the promotion of the Lloyd's Bill and was rejected by a very large majority.
Members' agents are remunerated on a similar basis to managing agents, receiving both a fee based on allocated capacity and a profit commission.

Categories of Business Conducted at Lloyd's 
The business of Lloyd's was traditionally divided into four principal categories: marine, non-marine, aviation and motor. Managing agents often describe the syndicates they manage by reference to the main category in which they have traditionally operated. However, these descriptions are not comprehensive and do not define syndicates which frequently write a broader range of business than those titles might suggest. 
Marine syndicates wrote, in some cases, an incidental non-marine account. Some of these incidental non-marine accounts carried an exposure to long-tail asbestos-related liabilities. Asbestos-related claims were made on some aviation syndicates.
Each syndicate writes a different mix of business, with each category of business carrying different risks. There is an important distinction between "short-tail" and "long-tail" risks. The term "short-tail" is applied to business on which claims generally arise and are settled relatively soon after the risk is accepted and the premium paid; "long-tail" denotes business for which the notification or the settlement of claims, or both, may take many years. 
The US $ "All Other" class of business included both longer long-tail risks and shorter long-tail risks.
Lloyd's syndicates underwrite both "direct business" (where the policyholder has a direct interest in the underlying risk insured) and "reinsurance" (where the policyholder is an insurance company or another Lloyd's syndicate). Reinsurance can be of an individual risk (a facultative reinsurance) or a portfolio or specified part of risks previously written or yet to be written (treaty reinsurance). 
Facultative-obligative (or fac/oblig) is one of a number of categories of reinsurance treaties. Some syndicates wrote retrocession as well as reinsurance business. 
XL and LMX business are dealt with below.
The insurance industry is international and, in many areas, highly competitive. In many countries, insurance can only be provided by locally-based licensed insurers. However, Lloyd's underwriters have been authorised to provide insurance under local insurance legislation in a number of countries including Australia, Canada, New Zealand and South Africa. In many of the countries where Lloyd's underwriters are so authorised, they are required to fulfil a number of local requirements, which may include the appointment of a general representative, the maintenance of local deposits and the filing of statistical reports. In other countries, Lloyd's underwriters are able to accept business without having to be licensed insurers. For example, in the USA, although licensed to write direct insurance only in Illinois, Kentucky and the US Virgin Islands, Lloyd's underwriters are eligible (except in Kentucky and the US Virgin Islands) to accept excess or surplus lines business (i.e. business which locally licensed insurers are unable or unwilling to underwrite) in all states. Lloyd's underwriters are also able to write reinsurance of insurance companies, even in countries where they are unable to write on a direct basis.

The Production and Placement of Business
Business is brought to Lloyd's by the world-wide networks of the Lloyd's brokers. Managing agents and active underwriters depend primarily upon Lloyd's brokers bringing insureds and cedant insurers to them. Business is also underwritten on behalf of syndicates through binding authorities. Binding authorities are arrangements whereby third parties (often brokers) are authorised to accept risks on behalf of the members of the syndicate subject to certain conditions and limits. 
A Lloyd's broker is a partnership or corporate body permitted by the Council to broke insurance business at Lloyd's on behalf of its clients. Most of the largest broking firms in the world own a Lloyd's broking subsidiary. Lloyd's brokers do not place all of their business through the Lloyd's market. They also deal with UK insurance companies and overseas insurance markets.
The Lloyd's broker is the final link in a chain from the policyholder to the Lloyd's underwriters which may include a number of other intermediaries. The remuneration payable to the Lloyd's broker (usually expressed as a percentage of the premium payable by the insured) may be shared amongst all the intermediaries. The Lloyd's broker is normally responsible for preparing the documentation which is used for presenting the risk to underwriters (the "slip"). A typical risk will be placed with a number of syndicates, with one particular underwriter (the "leader") setting the premium rate, approving the policy wording and, frequently, underwriting the largest "line" - or percentage - of the risk. In most cases, once the risk has been placed, the broker issues a cover note setting out the basic terms and conditions of the insurance, and the proportion of the risk accepted by each insurer. There may be some participants in the cover from outside the Lloyd's market. However, there will only be one policy document for the participating Lloyd's syndicates. That document is usually prepared by the broker, and checked by the Lloyd's Policy Signing Office, which issues it on behalf of the subscribing underwriters.

Lioncover
As a result of large losses suffered by the Names on those syndicates managed by PCW Underwriting Agencies Limited (caused mainly by the fraud of its active underwriter), Lioncover was formed in 1987 by the Society (as a wholly-owned subsidiary under its control) as a vehicle to reinsure the liabilities of syndicates formerly managed by PCW (later Richard Beckett Underwriting Agencies Limited). It subsequently also reinsured WMD Underwriting Agencies Limited, an associated agency. 73 syndicates were managed by these agencies. They were broad-based marine, non-marine and aviation accounts, including a large exposure to non-marine long-tail casualty business.
All PCW syndicates and Names were reinsured to close into Syndicate 9001. This was a syndicate formed specifically to enable Names on PCW syndicates to obtain reinsurance to close, thereby ending their involvement in the PCW syndicates for regulatory and tax purposes and enabling them to be released from membership of Lloyd's. Syndicate 9001 conducts no other business. Lioncover (as retrocessionaire) entered into a whole account retrocession agreement with Syndicate 9001 (as retrocedant). 
The Society gave indemnities to each of the members of Syndicate 9001 who were Mr. Murray Lawrence, Mr. Alan Parry and Sir Peter Miller.

Centrewrite
Centrewrite Limited, a wholly owned subsidiary of the Society, and under its control, was formed in 1991 to provide reinsurance, on an arms-length, unlimited basis, for syndicates in run-off and for individual members of such syndicates. From1993, it underwrote Lloyd's members' Estate Protection Plans.

XL and LMX Business
Under an excess of loss reinsurance contract, the reinsurer agrees to indemnify the reinsured in the event of the latter sustaining a loss in excess of a pre-determined figure, (the deductible). The reinsurer is liable for the amount of the loss in excess of the deductible up to an agreed amount, the deductible being the amount retained, (or retention), for the reinsured's own account. The purpose of excess of loss reinsurance is thus to limit the exposure of the reinsured on any loss, whether this arises from a large individual risk or through an aggregation of losses from a number of risks affected by a single event or loss occurrence. 
XL protection may be obtained through whole account or general reinsurance, which provides cover for all or a proportion of losses, net of recoveries, on underlying policies. In practice, cover will normally be purchased in layers, rather than through one single policy. Specific XL treaties provide protection in respect of specific portfolios of business accepted by the reinsured (e.g. hull, cargo, oil rigs). The term XL can be used to describe all these types of excess of loss business. 
In providing cover to primary insurers, accepting reinsurers may themselves accumulate exposures higher than they wish to retain. To meet their requirements for protection, the retrocession of excess of loss reinsurance developed as a mechanism that was intended to spread exposures more widely. 
LMX is not a term which is uniformly used. It is excess of loss reinsurance written by London market entities. It is written by both corporate reinsurers and Lloyd's syndicates. The nature of LMX business is the same as that of other excess of loss treaty reinsurance. LMX business is distinguished from other excess of loss business in that it is, depending on usage, (i) reinsurance underwritten by underwriters operating in the London market of risks originating in this same market, as opposed to general excess of loss business that is reinsured on a worldwide basis, or (ii) is an excess of loss reinsurance written in London of an excess of loss contract. The "London" distinction is thus almost entirely a geographical and cultural phenomenon, encouraged by certain brokers who specialised in this business and reflecting their knowledge of and trading relationships with the parties involved. 

The Spiral
Writing high level XL on XL business on a catastrophe account is high risk. The working of the spiral which developed in the 1980s was complex, and it is convenient to describe it only in a simplified form. The phenomenon of what is described as the spiral was not new or peculiar to the operation of the market in the 1980s. Before Hurricane Betsy in 1965, a similar spiral had developed in the London market, and the losses that followed that catastrophe demonstrated the effect of the spiral. The lesson had been forgotten by the 1980s. Many syndicates which wrote XL cover took out XL cover themselves. Those who reinsured them were thus writing XL on XL. They, in their turn, frequently took out their own XL cover. There thus developed among the syndicates and companies which wrote XL business a smaller group that was responsible for creating, in relation to some risks, a complex intertwining network of mutual reinsurance, a spiral. When a catastrophe led to claims being made by primary insurers on their excess of loss covers, this started a process whereby syndicates passed on their liabilities, in excess of their own retentions, under their own excess of loss covers from one to the next, rather like a multiple game of "pass the parcel". Those left holding the liability parcels were those who first exhausted their layers of excess of loss reinsurance protection. Following Hurricane Alicia in 1983, the non-marine market introduced higher retentions, co-insurance and the exclusion of XL of XL business from whole account or general programmes written. The marine market did not take similar measures. 
So far as the individual syndicates were concerned, the effect of the spiral was to magnify many times the number of claims flowing from a particular loss. This is because claims were repeatedly made in respect of the same loss as it circulated in the spiral. For example, claims in respect of the Piper Alpha loss exceeded by a multiple of about 10 the net loss that was covered on the London market. 
This gearing effect did not result in an ultimate payment of a greater indemnity than the initial loss. As the loss passed through the spiral, however, it impacted repeatedly on successive layers of reinsurance cover (which it progressively absorbed), and once the total underlying retention was breached, ultimately concentrated on those reinsurers who found their cover exhausted. 
The spiral effect of claims was, however, diminished or extinguished by individual retentions, whether before reinsurance protection commenced or after it had been exhausted, by co-insurance and by 'leakage' to reinsurers who did not reinsure with the same insurers. The effect of the spiral, however, significantly reduced the comfort that could properly be derived from being exposed only to what appeared to be a very high layer of loss. 
Lloyd's Underwriting Claims and Recovery Office saw 43,000 claims on 11,500 excess of loss policies in respect of the Piper Alpha loss. In the case of Piper Alpha, gross claims transactions totalled about $15 billion for the whole of the London market, whereas the actual loss was $1.4 billion. 
There was a claims turnover of ten times the actual loss in relation to the Exxon Valdez claim. 

Growth of the LMX market during the 1980s
Certain underwriters identified commercial opportunities in writing substantial LMX business in the 1980s. It was perceived that there was an opportunity to write profitable LMX business in circumstances in which underwriting capacity was increasing rapidly and other underwriting business (eg marine) was sluggish or in decline. However, the business involved exposures and a need for judgments different from those with which many of these underwriters were familiar. In the event, a number of Lloyd's syndicates and others in the London market suffered very heavily from their decision to write such business. Further details of the nature of the XL spiral, and the reasons for the heavy losses suffered, are contained in the decisions of Phillips J in the Gooda Walker and Feltrim litigation. The parties have agreed the facts set out in those judgments relating to the manner in which the business was written on those syndicates, and the findings of Phillips J as to the negligence of the underwriters concerned.
There was also an increase in the number of companies in the so-called "fringe" market in London at this time. Many of the companies that then went into reinsurance were highly inexperienced in reinsurance and were used by the brokers to drive prices down or to get unacceptable clauses accepted. One reason that brought people into the market was the opportunity for so-called "cash flow" underwriting. The 1980s were a time when returns on investment were high. A high cash flow would produce high investment returns. This led to some reinsurers pricing reinsurance at rates that would in normal circumstances have been considered too low in terms of pure underwriting rates of return. The big continental reinsurance groups in many cases also made pure underwriting and overall losses on specific catastrophe accounts but were able to spread the losses across other segments of business. There were only a very few years when they lost large amounts overall. The worst hit were those who did not have a spread of business; this also applied to the worst hit syndicates in Lloyd's. Continental reinsurers generally had the benefit of equalisation and other reserves which enabled them to weather the bad years by spreading their losses over more than 12 months.
Gross premiums for business written in the 1988 account showed a 61% increase by comparison with premiums for business written in the 1983 account, with a growth of 201% in premium income of the LMX syndicates over the same period. Gross premium income of the LMX syndicates as a proportion of Lloyd's total gross premium income rose from 13.1% for the 1983 account to 24.6% in 1988 and 26.4% in 1990. Premium rates for LMX business fell substantially in the 1980s.
In the period 1987 to 1990, insurance and reinsurance markets were impacted by an unprecedented number of major catastrophe losses, viz 1987, North European storms; 1988, Piper Alpha and Hurricane Gilbert; 1989, Hurricane Hugo, the San Francisco Earthquake, Exxon Valdez, and Phillips Petroleum; 1990, North European storms. The cumulative impact of these losses was severe on both companies and syndicates. For the 1987 North European storms, Piper Alpha, Hurricane Hugo and the 1990 North European storms, companies (including direct insurers and major reinsurers) carried 69%, 45%, 64% and 64% of the liability respectively, but still leaving substantial losses for Lloyd's syndicates. On the basis of the syndicates analysed in the Walker Report, losses were concentrated on a relatively small number of syndicates: although 87 syndicates were writing significant LMX business in 1988 or 1989 – in one case 93% of that syndicate's stamp capacity – 95% of the losses attributable to those syndicates for the 1988 account were encountered on 12 of those syndicates and 79% of the losses of the LMX syndicates for the 1989 account were attributable to 14 of them.
In the 1980s premium rates for LMX business fell substantially. In circumstances of apparently reasonable profit levels (in the years between 1965 and 1987, the worldwide reinsurance market was relatively undisturbed by major catastrophes, thus generally leaving reinsurers with a 22 year span of profitable results) and increasing capacity, premium rates in 1987 and 1988 had fallen to only 10% of those being charged ten years earlier and were reduced in higher layers as a consequence of the perceived diminution in exposure.
Catastrophe reinsurance rates have risen since 1989. The expectation of the world-wide reinsurance industry in April 1995 was that substantial withdrawals of capacity from the industry as a whole that had taken place would keep reinsurance rates hard over the medium term.

The Risks
The high risk nature of the spiral exposures accepted by the syndicates and the level of reinsurance accepted by the syndicates and the level of reinsurance purchased to protect them was not appreciated by many Names. Had the Names been better aware of the risks involved they might have ceased or reduced their participation.

C. GOVERNANCE AND ADMINISTRATIVE STRUCTURE
Prior to the 1982 Lloyd's Act, powers were conferred upon the Society of Lloyd's by four earlier Acts of Parliament: the Lloyd's Acts of 1871, 1911, 1925 and 1951. The Committee of Lloyd's was charged with the management and superintendence of the affairs of the Society, but was subject to control and regulation by general meeting of the members (Section 29 Lloyd's Act 1871).
In summary, the powers of the Society were:
(i) to make, revoke or amend byelaws (by general meeting, re-confirmed by a further general meeting within 28 days and subsequently approved by the Recorder of the City of London) in respect of a number of defined purposes (Section 24 Lloyd's Act 1871);
(ii) to suspend members for a period not exceeding 2 years for any "act or default discreditable to him ... in connection with the insurance business" (Section 12 Lloyd's Act 1911);
(iii) to expel a member for a breach of the rules of the Society or for committing a discreditable act following a determination of guilt by 2 arbitrators and on the vote of four fifths of the members attending at a general meeting convened for that purpose (on at least 6 days notice) (Section 20 Lloyd's Act 1871);
(iv) to investigate and punish any frauds or felonies which relate to the insurance business carried out by members (Section 11 Lloyd's Act 1911);
(v) to raise or borrow money (Section 3 Lloyd's Act 1951);
(vi) to guarantee payment of claims (Section 9 Lloyd's Act 1911); and
(vii) to act as trustee (Section 8 Lloyd's Act 1911).
The Committee was originally established under the 1871 Act and comprised 12 individuals appointed under that Act (Section 11 Lloyd's Act 1871). Prior to the start of the Relevant Period the number of Committee members was increased to 16 (See Byelaw 44 of the 1973 edition of Lloyd's Byelaws). One quarter of the Committee retired by rotation each year and new members were elected by a vote of all the members at general meeting. Individuals who had retired from the Committee were eligible for re-election one year after they had stood down. Newly elected Committee members would be invited to attend the Committee meeting at the end of the year.

The Council of Lloyd's
The Council of Lloyd's was established by the Lloyd's Act 1982 and was formed on 1 January 1983. The first meeting of the Council took place on 5 January 1983. Under the Act the Council became the body charged with the management and superintendence of the affairs of the Society and the power to regulate and direct the business of insurance at Lloyd's (Section 6(1) Lloyd's Act 1982). To that end, the Council was empowered (by special resolution of separate majorities of the working members and of the external and nominated members together) to:
(i) make such byelaws as from time to time seem requisite or expedient for the proper and better execution of Lloyd's Acts 1871 to 1982 and for the furtherance of the objects of the Society, including such byelaws as it thinks fit for any or all of the purposes specified in Schedule 2 of the Act; and
(ii) amend or revoke any byelaw made or deemed to have been made thereunder (Section 6(2) Lloyd's Act 1982).
Under Section 6(4) of the Lloyd's Act 1982, any byelaw passed by the Council may, within 60 days, be challenged at a general meeting by a majority of those voting, such majority being at least a third of the total membership, on the petition of not less than 500 Names. 
The composition of the Council was established by the Lloyd's Act 1982 as comprising 16 working Names, 8 external Names and 3 Names nominated by the Council and confirmed by the Governor of the Bank of England (Section 3 Lloyd's Act 1982). In July 1987, following the Neill Report, the composition was altered to 12 working Names, 8 external and 8 nominated Names.
The composition of the Council was (after the Relevant Period) subsequently further altered and the number of working Names reduced to 6.
Working members of the Council are elected by the working members of the Society and external members of the Council are elected by external members of the Society (Section 3(2) Lloyd's Act 1982). The conduct of elections of members of the Council is regulated by byelaws passed by the Council. During most of the Relevant Period elections for both working and external Council members were held by postal ballot on the same day as the general meeting in November each year (Byelaw 13 of 1983, paragraph 2). Council members were elected for 4 years (save for nominated members of Council who served for 3 years at a time). Council members were required to take a sabbatical year after serving on the Council before standing for re-election. The date on which the elections were held was changed in 1987 (Byelaw 1 of 1987).
The Chairman and Deputy Chairmen of Lloyd's are elected on an annual basis by the Council (Section 4 Lloyd's Act 1982).

The Committee of Lloyd's
From January 1983 the Committee of Lloyd's was comprised of the 16 working members of the Council (Section 5(1) Lloyd's Act 1982). This was reduced to 12 in July 1987. By means of special resolution, the Council was able to delegate certain functions to the Committee, namely:
(i) the making of regulations regarding the business of insurance at Lloyd's; and
(ii) the carrying out or exercise of any duties, responsibilities, rights, powers or discretions imposed or conferred upon the Council by any enactment (other than an enactment in the Act) or regulation made in pursuance thereof or by any other instrument having the effect of law or by any other document or arrangement whatsoever, whether or not such enactment, regulation, instrument, document or arrangement was in force or in existence on the day when the Act came into force, insofar as such delegation was not prohibited by any enactment, regulation, instrument, document or arrangements (Section 6(6) Lloyd's Act 1982).
Other powers and functions under the 1982 Act and the power to make directions regarding the business of insurance at Lloyd's may be delegated to the Committee or to the Chairs of Lloyd's or to the Chairs of the Committee (Section 6(5) Lloyd's Act 1982).

The Chairs
The Chairman was the ambassador and principal spokesman of Lloyd's to the outside world, including external Names. [He was the team leader of a team that was the fountainhead of authority and policy. He liaised regularly with Market Association Chairmen. For the proper performance of his functions it was necessary for him to inform himself of important market activities and problems.] 
[The two elected deputy Chairmen deputised for the Chairman when he was not available. Where appropriate, any member would be allowed direct access to the Chairs.] 

Committee Structure
In turn, the Council and the Committee have delegated functions to certain committees. The roles of certain committees relevant to the present dispute (both before and after the 1982 Act) are set out below.

(a) Audit Committee
The Audit Committee was a policy and advisory committee reporting to the Committee of 
Lloyd's on matters affecting the solvency of members of Lloyd's and the security underlying 
Lloyd's policies. The Audit Department of the Corporation provided administrative support to the Audit Committee and was directly responsible to it. 
The Audit Committee existed from 1960 until 1983 when it was replaced by the Members' Solvency and Security Committee. (The name was changed to Solvency and Security Committee in 1986.)
The MSSC was responsible for making recommendations to the Committee of Lloyd's on all aspects relating to the annual solvency test and the protection of Lloyd's policyholders. The MSSC liaised with the AASC (see below) in relation to accounting and audit considerations relevant to the conduct of the annual solvency test.

(b) Accounting and Auditing Standards Committee
The AASC was set up in 1983 (effectively taking over the work of two Fisher Task groups: 4 & 15) to define the accounting and related auditing requirements applicable to Lloyd's brokers, underwriting agents and syndicates, the reporting of information to Names and the introduction of manuals to reflect the Council's requirements as to accounting and audit. 

(c) Membership Committee
The Membership Committee existed from January 1977 to December 1985. It was a policy and advisory committee which reported and made recommendations to the Committee of Lloyd's on matters relating to membership requirements.
The Membership Committee considered the terms of the rota brief, and consulted the LUAA and others, from time to time. In March 1982 the question whether the subject of latent disease should be "introduced" into Rota Committee was addressed by Mr. Murray Lawrence to the Membership Committee.

Functions and Structure of the Corporation of Lloyd's
The executive and administrative functions of Lloyd's are fulfilled by the Society's employees (known colloquially in the market as 'the Corporation'). 
Prior to the introduction of the 1982 Act, the Corporation staff were divided into a large number of departments which were grouped into the following areas:
(i) the Corporation services group including the catering, office services, personnel, premises, redevelopment, the superintendent of the Room's department and training departments;
(ii) the Management services group which was divided into data processing (called computer services in 1982), system development, technical and, also from 1982, planning;
(iii) the Publicity, Information and Press department whose responsibilities included the many Lloyd's publications including co-ordinating the production of the annual report and distribution of information to Names;
(iv) the Advisory, Brokers and Legal departments;
(v) the Finance group which encompassed the finance department, and accounts, investment, tax and internal audit departments;
(vi) LUCRO, the marine market claims office;
(vii) the Aviation department which included sections dealing with surveys (including accident investigation) and intelligence;
(viii) the Agency department which dealt with settlement of claims abroad, salvage arbitration, cargo certificates and also included an administration section dealing with more general matters;
(ix) LPSO which issued all policies written in the Lloyd's market on behalf of underwriters; and
(x) the Membership Services group incorporating the Membership, Underwriting Agents and Audit, and Deposit departments.
While the Secretary-General was responsible for the Corporation staff, the head of each department reported to the Chairman of Lloyd's. The Chairman was assisted in this task by the Deputy Chairs who acted as a point of contact for some of the departments.

Secretary-General
From 1975 the senior member of the Corporation staff was the Secretary-General. The Secretariat ensured that departmental papers and representatives were available at Committee discussions. Following the introduction of the office of Chief Executive in 1983, the Secretary-General's main role was as advisor to the Chairs and secretary to the Council. From 1984 the Secretary-General became known as the Secretary to the Council. When Mr. Ian Hay Davison became Chief Executive a subsidiary role was created for the incumbent Secretary-General and, upon his retirement, he was not replaced. 
The Secretary-General was responsible for co-ordinating the work of the different departments including the supervision of the agenda for the weekly Committee meeting. 

"O" Group
The "O" Group existed from the 1970s to the early 1990s. It had no terms of reference as such but was effectively a small informal group set up to co-ordinate the presentation of papers to Council and Committee. It included the Chairman and Deputy Chairmen, the Secretary-General, the Chief Executive and typically the group heads. Its role included the review of papers to be submitted at Council/Committee meetings and consideration of general policy issues. Given the informal nature, the precise role played by the 'O' Group was dependent on the Chairs and Chief Executive at the relevant time. 

Chief Executive
The creation of this post was instigated by the Bank of England, who nominated Mr. Ian Hay Davison as a suitable candidate.
Terms of reference for the Chief Executive were laid down in 1983. The Chief Executive is also a Deputy Chairman of Lloyd's and a nominated member of the Council.
In May 1983 the Chief Executive put forward proposals for a new organisational structure comprising 6 group heads reporting directly to him. Departmental managers would in return report to the group heads. Mr Davison's organisational proposals were accepted and implemented by the Council.
The new structure comprised the following groups:
(i) Finance. This group was responsible for the Corporation's financial affairs including internal audit, treasury, financial information and market financial services. From 1984 the Finance group was combined with the Market Services group.
(ii) Market Services. This group was responsible for co-ordinating organisations which provided direct services to the market including LPSO, LUCRO and the Aviation department. 
(iii) Regulatory. This group was responsible for the self-regulation of the Society. The departments falling within its control included membership, underwriting agents and audit, deposits, advisory and brokers.
(iv) Systems and Communications. This group provided computer and telecommunications services to the market and was responsible for developing systems to aid both the market and the Corporation in their work.
(v) External Relations. This group included departments dealing with information, legislation and taxation but by 1984 responsibility for taxation and legislation had been transferred to the Regulatory group and for information to the Finance and Market Services Group.
(vi) Corporation Services. This group was responsible for the catering, personnel, training and premises departments within the Corporation. Departments within this group became part of a new Administration group in 1988.
The Secretary-General initially retained control over the legal, secretarial, research and disciplinary functions but these subsequently fell under the umbrella of group heads.

Chief Executive's Group
The CEG was established in 1983 and consisted of the group heads together with the Secretary- General and the Chief Executive. The CEG was a management group which discussed co-ordination of the activities of the Corporation. Towards the end of the Relevant Period the group also adopted an administrative role in co-ordinating the production of papers for Council. 

Role of the Department of Trade and Industry
The basic regulatory arrangements governing carrying on insurance business in the UK are now provided for by the Insurance Companies Act 1982. (Prior to the introduction of the ICA 1982, similar regulatory arrangements were provided for by the Insurance Companies Act 1974). Insurance may normally be carried on only by bodies authorised to do so by the Secretary of State. It is the Secretary of State for Trade and Industry who is responsible for this sector, and the powers of the ICA 1982 were generally exercised on his behalf by the DTI. The ICA 1982 provides that individuals may only underwrite insurance business in the United Kingdom if they are accepted as members of Lloyd's.
In view of the regulatory regime provided by the Lloyd's Acts, Lloyd's is exempted from some of the requirements of the ICA 1982. However, pursuant to the ICA 1982 and regulations made under it (i) the requirements to pay all premiums into Premiums Trust Funds were imposed; (ii) accounts of every underwriting member had to be prepared and audited annually and a certificate of solvency of each underwriting member delivered to the DTI; and (iii) the Council had to file an annual return summarising the extent and character of the insurance business done by the members of Lloyd's. 
Under the terms of the ICA 1982 and the Insurance (Lloyd's) Regulations 1983, the members of Lloyd's taken together are required to maintain a minimum margin of solvency. A failure to comply with this requirement is one of the grounds on which the DTI is entitled to exercise extensive powers of intervention for the protection of policyholders.
The powers of the DTI if it intervenes include:
(i) the power to require maintenance of assets in the European Union or the United Kingdom of value equal to the whole or a specified proportion of Names' liabilities;
(ii) the power to stipulate who should hold the assets as trustee;
(iii) the power to obtain information; and
(iv) a residual power to require a Name to take such action as appears to the Secretary of State to be appropriate for the purposes of protecting policyholders against the risk that the Name may be unable to meet his/her liabilities. 

D. MARKET ASSOCIATIONS
In addition to the committee and departmental structure, there are a series of market associations which represent the interests of the various market constituencies but do not involve themselves in underwriting decisions. A separate association exists for each underwriting market. They are independent of the Society and Corporation of Lloyd's and do not act under its control. They are: the LUNMA (non-marine), the LUA (marine), the LMUA (motor) and the LAUA (aviation). Details of these and other market bodies are dealt with below.

LUNMA
In 1910 what is now Lloyd's Underwriters' Non-Marine Association Ltd was formed with the object of meeting periodically to consider matters relating to fire and non-marine business at Lloyd's. One of the chief functions of that association was then, and still is, to gather and circulate to its members information relating to non-marine business throughout the world. Within the purview of LUNMA was the wording and effect of standard policy forms for use by the non-marine market. LUNMA was incorporated as a company limited by guarantee on 3 January 1991.
Membership of the association comprises all the active underwriters at Lloyd's underwriting non-marine business and they elect a committee.

LUA
Lloyd's Underwriters' Association was formed in 1909 and represents the interests of the marine market at Lloyd's. The committee of the association meets regularly to discuss the underwriting and general administrative problems which affect marine insurance. It frequently makes recommendations to all members of the association with a view to improving the efficiency and profitability of marine insurance. Also, the association keeps its members supplied with pertinent information that is likely to have some bearing upon the underwriting of marine insurance at Lloyd's.

LMUA
The introduction of compulsory third party insurance in 1930 led directly to the formation of the Lloyd's Motor Underwriters' Association in June 1931.

LAUA
Lloyd's Aviation Underwriters' Association was formed in 1935 to represent the interests of the Lloyd's aviation market. Membership comprises active underwriters of any Lloyd's syndicate writing aviation business. The committee acts on behalf of the members as a whole, keeping them informed (particularly in relation to foreign legislation and international conventions governing the liability of air carriers) and sometimes making recommendations designed to improve the efficiency of the market.
Throughout the Relevant Period: 
(i) the Chairs were ex officio members of the four market associations (LUNMA, LUA, LAUA and LMUA); 
(ii) there were individuals who were members of both the Committee of Lloyd's and the market associations.
LUAA
Lloyd's Underwriting Agents' Association was formed in 1960 to look after the interests of underwriting agents and to examine and report on matters which might be referred to it by the Chairman or Council of Lloyd's. The association has no regulatory power. The association acts as a forum for its members and, when necessary, speaks collectively on their behalf. The association is represented on a number of standing and ad hoc committees at Lloyd's and it liaises with the various departments of the Corporation of Lloyd's on matters affecting agents and the Names for whom they are responsible.
Underwriting agents are a single category within Lloyd's regardless of whether managing, members' or combined. 

BIBA
The British Insurance Brokers' Association was a single national body representing the interests of insurance brokers in the United Kingdom. The purpose was to ensure that, for the future, united action was taken on measures to protect and promote the interests of the British insurance broking industry and that a single representative body existed which was able to react to or express opinion on matters affecting the industry. BIBA is not a body within Lloyd's regulatory ambit. 

LIBC
The Lloyd's Insurance Brokers' Committee was an autonomous committee of BIBA. It was the direct successor of Lloyd's Insurance Brokers' Association, which was formed in 1910 but merged into BIBA in 1978. While the LIBC was one of the regional committees of BIBA, in so far as matters affecting the interests of Lloyd's brokers were concerned, it was autonomous and the interests of Lloyd's brokers remained in the hands of a committee of 16, elected by Lloyd's brokers themselves. It therefore continued to represent Lloyd's brokers on, inter alia, all matters peculiar to their relationships in the Lloyd's community.

Asbestos Working Party
The AWP was formed on the initiative of leading non-marine underwriting agents in August 1980. Interested underwriters were advised of the AWP's formation.
The functions of the AWP, as set out in a letter from Elborne Mitchell to all interested underwriters dated 1 December 1981, included the following:
(i) to provide a forum for discussing problems relating to asbestosis claims and to seek market agreements to assist underwriters in their handling of claims;
(ii) to advise on coverage matters when requested to do so by the leading underwriters;
(iii) to consider facultative re-insurance as well as direct insurance; 
(iv) to explore solutions to the asbestosis problem otherwise than by litigation or traditional claims handling; and 
(v) to assist in the establishment and development of a database to provide claims information for reserve purposes.
The AWP did not undertake any executive function; it acted in an advisory capacity and to facilitate and co-ordinate the dissemination of information to the insurance market as a whole. It considered that it was not its place to usurp the functions of underwriters and others to whom it communicated in the market with regard to information that came to hand.
The AWP, which was not a Lloyd's initiative but rather a market initiative, had no agency or other legal relationship with Lloyd's, and Lloyd's is not, and never has been, responsible for the acts or omissions of the AWP.
The AWP was created after consultation between the signatories to the letter of 5 August 1980. Its work was intended to embrace a matter of importance to some Lloyd's syndicates and London companies. In December 1982, Mr EE Nelson was asked by Mr. Peter Green to give a brief summary regarding the position of asbestos-related claims when the MPRs for the US$ All Other Business category were discussed at the Committee meeting. Panel auditors during the Relevant Period were addressed by Mr. Murray Lawrence, Mr. Ted Nelson, Mr. Ralph Rokeby-Johnson and Mr. Robin Jackson on the question of (amongst other things) asbestos-related claims. The AWP sought authority from Lloyd's syndicates and companies in the London market for the handling of claims. Individuals (including Mr. R.A.G. Jackson) who were members of the AWP, or its claims committees, were amongst those involved in negotiating the Wellington Agreement and assisting in the establishment of the Asbestos Claims Facility. US attorneys reports were sent to the AWP and distributed to insurers at interest in the London market. The AWP was responsible for the decision to establish Toplis and Harding Asbestos Services Ltd. (later Toplis and Harding Market Services Ltd.) to which attorneys' reports were subsequently addressed. Toplis and Harding Inc. (a US company) was purchased by Lloyd's in 1984. Alexander Grant, a firm of US chartered accountants, was retained by the AWP in 1981 to establish a database containing claims information. Toplis and Harding Inc. assisted in inputting information into the database. 

Other Working Parties
In addition to the AWP, a number of other working parties were formed by underwriting agents to study particular claims related issues of interest to the market, for example, the Computer Leasing Working Party and the Environmental Claims Group.
Mr. Murray Lawrence was chairman of the Computer Leasing Working Party.
Mr. Ian Posgate was a member of the working party. The Computer Leasing Working Party retained Elborne Mitchell as its solicitors. For a short period, computer leasing formed part of the brief to Rota Committee Chairmen.

Market Representation of Names
Names are represented through the external members of the Council elected by them. A number of associations have also been created to represent their interests including the Association of Lloyd's Members. Prior to the formation of the Council, external Names were entitled to vote alongside working Names for the Committee candidates. Upon formation of the Council, external Names were entitled to vote only for external members of the Council. The responsibilities of members of the Council, to have regard to the interests of Lloyd's as a whole, did not vary from Council member to Council member. Names' action groups have existed since at least 1979 (when the Sasse action was in existence). 

E. DEVELOPMENT OF SELF-REGULATION AT LLOYD'S
Lloyd's was established as a society of underwriters in 1811 when a Deed of Association was executed by the members at that time. By 1871, the business of Lloyd's had increased in size to the extent that it was considered necessary to promote an Act of Parliament to establish the Society of Lloyd's in a more permanent fashion. The Lloyd's Act 1871 incorporated the then members and all persons subsequently admitted as members into the Society and Corporation of Lloyd's. That Act, with a few basic amendments, established the Committee of Lloyd's as responsible for managing the affairs of Lloyd's and set out the framework upon which Lloyd's affairs were conducted during the ensuing 110 years. It laid down (inter alia) and confirmed two fundamental rules for Names, that underwriting must be conducted only in the Underwriting Room and a Name shall be a party to a contract of insurance underwritten at Lloyd's only if it is underwritten with several liability, each underwriting member for his/her own part and not for another, and if the liability of each underwriting member is accepted solely for his/her own account.
During the late 19th and early 20th Century, the market saw the development of new forms of underwriting and the Lloyd's Act 1911 extended the objects of Lloyd's to include the carrying on by Names of insurance business of every description (previously it had been limited to marine business). The Act also introduced the power of the Society to suspend temporarily any Name if the Committee considered him/her to have been guilty of any act or default discreditable to him/her as an underwriter. 
The Lloyd's Act 1925 gave enabling powers in respect of the making of byelaws by the Society and modified some of the rules governing the operation of the Committee. A further Lloyd's Act in 1951 was promoted to give the Society full powers to borrow money. Several parts of the Acts referred to above were repealed by the Lloyd's Act 1982, the purpose and provisions of which are considered further below. 

The Cromer Report
In November 1968, Lord Cromer was asked to head a Working Party to investigate and recommend "what should be done to encourage and maintain an efficient and profitable Lloyd's underwriting market of independent competing syndicates, which would be of a size to command world attention". The Cromer Report was delivered to the Committee of Lloyd's at the end of December 1969. The Cromer Report was made available by Lloyd's to Names in 1986. The Cromer Report pointed out that in order to maintain its share of the world market in insurance, which was expanding at 7 to 10 per cent. per annum, Lloyd's would need an increasing amount of capital. 

The Fisher Report
In 1979, the Committee of Lloyd's established a working party, chaired by Sir Henry Fisher, its terms of reference being: 
"To enquire into self-regulation at Lloyd's and for the purpose of such enquiry to review:
(i) the constitution of Lloyd's (as provided for in Lloyd's Acts and Byelaws);
(ii) the powers of the Committee and the exercise thereof; and
(iii) such other matters which, in the opinion of the Working Party, are relevant to the enquiry.
Arising from the review, to make recommendations".
The principal recommendation of the Working Party in May 1980 was that:
"... the constitution is no longer appropriate and the Committee's powers are inadequate for self-regulation in modern conditions. We have, therefore, recommended that the Committee of Lloyd's should promote a new private Act of Parliament so that the constitution of Lloyd's can be brought up to date and the powers of self-regulation enlarged."
The report of the Working Party contained a draft bill to amend Lloyd's Acts 1871-1951. That draft was the basis of the bill approved by the Lloyd's membership at a meeting on 4 November 1980. On 27 November 1980, the Committee presented the draft bill to Parliament for passage as a private Act of Parliament. The Bill received Royal Assent on 23 July 1982.

The Neill Report
In January 1986 the Financial Services Bill was published and did not include Lloyd's within its scope. However, during the second reading of the Bill, the Secretary of State for Trade and Industry announced that the Sir Patrick Neill would head an inquiry into the administrative and disciplinary framework of Lloyd's and the operation of Lloyd's Act 1982. The terms of reference of the Neill Committee were: 
"to consider whether the regulatory arrangements which are being established at Lloyd's under the 1982 Lloyd's Act provide protection for the interests of members of Lloyd's comparable to that proposed for investors under the Financial Services Bill". 
The Neill Committee reviewed the byelaws and codes of conduct made since 1983. 
The Neill Committee did not recommend that the regulation of membership of Lloyd's should be brought under the auspices of the Securities and Investments Board. Nor did it recommend any amendments to Lloyd's Act 1982; it stated that its recommendations could be effected by byelaws and resolutions of the Council.
The Committee expressed a number of views on the relationship between external and working members of Lloyd's and made a total of 70 recommendations. These related to the following areas: 
(i) the constitution of the Council of Lloyd's: in particular, it recommended increasing by four the number of members nominated and approved by the Governor of the Bank of England and reducing by four the number elected from working Names;
(ii) admission to membership;
(iii) the relationship between Names, members' agents and managing agents: in particular, the structure and terms of the standard agency agreement;
(iv) syndicate accounting and disclosure;
(v) registration of underwriting agents, Lloyd's brokers and syndicate auditors;
(vi) conflicts of interest: especially in relation to common ownership of managing and members' agents;
(vii) enforcement of the system of regulation;
(viii) compensation of and complaints by Names.

Implementation
A chart listing all the byelaws passed by the Council of Lloyd's since the introduction of the 1982 Act and as a consequence of the development in self-regulation is at Appendix II to the statement of agreed facts.

Central Fund Byelaw (No 4 of 1986)
The Lloyd's Central Fund is held and administered by the Society of Lloyd's in accordance with the Central Fund Byelaw (No. 4 of 1986). Members contribute to the Fund each year based on a percentage of their gross allocated capacity.
As part of Lloyd's solvency procedure, certain assets of the Fund may be used to cover underwriting deficiencies of Names at the preceding 31 December, to enable them to pass the solvency test and meet the requirements of the DTI.

Evolution of the Central Fund Byelaw
The 1986 Central Fund Byelaw (No. 4 of 1986) replaced the Central Fund Agreement of 1927. This embodied the provisions of the guarantee scheme (the immediate predecessor of the 1927 Agreement). The Fund was set up to meet the liabilities of members who had been declared in default of their obligations, and was also available for the "advancement and protection of members", at the Council's discretion. It was funded through contributions from members based on premium income of the previous year. The catalysts that provoked the making of the 1927 Agreement were the Burnand (1903) and Harrison (c.1923) cases. Both involved deliberate fraud on the part of the underwriters and caused considerable losses for Names. As a direct result, the Chairman in the mid 1920s, Mr Arthur Sturge, suggested that £200,000 be subscribed by all underwriters in proportion to their premium incomes.
Clause 3 of the 1927 Agreement stated as follows:
"The Central Fund shall consist of (a) £49,988-8s-0d now in the hands of the Society and arising from earlier guarantee schemes which have now been discontinued (b) the contributions of the Subscribing Members hereinafter mentioned (c) the investments for the time being representing such fund and contributions and (d) any other monies which may be at any time added to the Central Fund".
The Central Fund was held and administered by the Committee of Lloyd's (and, following the recommendation of the Fisher Working Party, the Council), on behalf of all members in accordance with the 1927 Agreement and subsequent amendments.
The 1927 Deed was replaced by the Central Fund Byelaw (No. 4 of 1986) as a result of the findings of the Fisher Working Party in 1980. The Fisher Working Party recommended that the Council of Lloyd's should be given express power by an amendment to Lloyd's Acts to maintain the Central Fund, to decide (and to alter from time to time) the purposes to which money in the Fund may be applied, to require members of Lloyd's to contribute to it, and to fix the rate of contribution and to alter it from time to time. Whether or not this was done, they considered that the 1927 Agreement required consideration by the Council with a view to possible revision. In particular the Council should review:
"(a) the purpose for which money in the Fund may be used;
(b) the investment of the Fund in the light of the purposes for which the money in the Fund may be required;
(c) the provision that money in the Fund may not be applied in payment of claims on policies underwritten by a Member until he has been declared to be in default;
(d) the rates of contribution fixed by the 1927 Agreement, and the procedure for increasing contributions in case of need;
(e) the practice in relation to the formalities required for adhesion to the 1927 Agreement." (Fisher Report, para 24.16).
Fisher Task Group 19 was given the task of considering these recommendations. It recommended that:
(i) Names should be required as a condition of membership of Lloyd's to consent to variation of the Central Fund 1927 Agreement
(a) removing the maximum contribution limit of 0.45% of premium income and empowering the Committee by regulation to levy contributions at rates to be determined;
(b) removing the proviso against increasing the financial liability of Names;
(c) enabling future modifications or variations to the Central Fund 1927 Agreement to be effected by Byelaw rather than by Deed;
(ii) the 1927 Agreement should be amended to allow payment of claims without a declaration of default where Names subscribing a risk cannot be identified;
(iii) the default declaration proviso in Clause 10 ("no part of the Central Fund shall be applied in paying or making good or purchasing claims or returns on Policies...(a) unless and until he shall be been declared by a Resolution of the Committee to have made such default as aforesaid...") should not be immediately removed but by amendment to Clause 15 (to be agreed to by Names in a supplemental deed) the Council should be empowered subsequently to remove it by Byelaw;
(iv) a Byelaw should require all Names to subscribe to the Central Fund.
All the Task Group recommendations were agreed by the Committee with two modifications: first, they proposed a maximum rate of contribution of 2½% of premium income to the Central Fund, and secondly, they proposed that it remain necessary for a member to be declared in default before his claims could be met by the Central Fund.
The recommendations were considered by the Council on 21 March 1983. The Council approved the recommendations made by the Task Group save that it agreed with the Committee that the default declaration provisos should not be removed. The Council did not, however, agree to the suggested maximum rate of contribution, but deferred a decision until a final decision had been taken as to the future form of the Fund.
The Council also approved the Committee's proposal that, as from 1984, the basis for calculating the levy should be gross premium income (i.e. without deduction of reinsurance premiums paid) instead of net premium income. It was calculated that the change was equivalent to increasing the levy on net premium income from 0.45% to 0.60% and that this increase was an amount which was not less than the premium which Names would have been required to pay for the guarantee policies which ceased to be required in respect of years of account later than 1981 (and the premiums on which ceased to be paid in the 1984 year of account).

F. LEGAL RELATIONSHIP BETWEEN NAMES AND THEIR AGENTS

Legal Relationships Between Names and Agents
There are three types of agents, a members agent, a managing agent and a combined agent, which performs both the roles of members' agent and of managing agent. From the early 1970's insurance in the Lloyd's market could only be effected through an agent if that agent was listed in the Register of Approved Lloyd's Underwriting Agents (Byelaw No. 87 (18 November 1970)). In 1984 the Register was divided to record separately those agents approved as managing and members' agents (Byelaw 4 of 1984). In deciding whether the agent was "fit and proper" to be registered, the Committee would take into account the suitability of its directors, partners or staff, the suitability of the active underwriter(s) (in the case of a managing agent) and its ability to supervise and service all of its activities and responsibilities (Byelaw 4 of 1984, paragraph 8). It was agents who decided whether they wished to be managing agents, members' agents or combined agents and to seek registration accordingly.
Until the introduction of the standard agency agreement, there was no mandatory standard form of agency agreement. On 11 March 1985 the Agency Agreements Byelaw No. 1 of 1985 was passed which stipulated that from 1 January 1987 insurance business could not be underwritten in the Lloyd's market unless the Name had entered into a Standard Agency Agreement. The Standard Agency Agreement governed the relationship between the Name and his/her members' agent (or a combined agent acting as members' agent). Where that members' agent or combined agent delegated some or all of the underwriting to a managing agent a Standard Sub-Agency Agreement contained the terms of that delegation. 
There was no direct contractual relationship between a Name and his/her managing agent, unless the members' agent also acted as managing agent. (The position changed in 1990 with the implementation of the Agency Agreements Byelaw (No. 8 of 1988) which prescribed standard form agency agreements and introduced a direct contractual relationship between the Name and his/her managing agent). However, the House of Lords in Henderson v Merrett Syndicates Ltd [1994] 3 WLR 761, upheld the decision of the Court of Appeal that the delegation of the conduct of underwriting business did not remove the implicit promise by the members' agent that the work of the managing agent would be carried out with reasonable care and skill. In addition, the managing agents were under a similar, non-contractual duty to Names to exercise reasonable care and skill.

The Role and Duties of a Members' Agent
A members' agent is an agent to whom members delegate complete control of their Lloyd's affairs and who enter into sub-agency agreements with managing agents to place Names on their syndicates. A members' agent does not underwrite any risks. Although many Names remain with the same members' agent throughout their membership of Lloyd's, it is possible to transfer to another members' agency. The new members' agent may not be able to secure a Name's participation in syndicates on which that Name had previously underwritten, and accordingly a transfer of members' agent may involve a change in the Name's syndicates.
The primary role of a members' agent is to manage a Name's Lloyd's affairs other than the actual management of the underwriting. The main duties of a members' agent were summarised by:
(i) Gatehouse J in Brown v KMR Services [1994] 4 All ER 385 at 390 as:
"to advise the Name which syndicates to join and in what amounts...to keep him informed at all times of material factors which may affect his underwriting...to provide him with a balanced portfolio and appropriate spread of risk; a balanced spread of business on syndicates throughout the main markets at Lloyd's...to monitor the syndicates on which it places the Name, and to make recommendations as to whether the Name should increase his share on a syndicate, join a new syndicate, reduce his share, or withdraw...to keep regularly in touch with the syndicates to which the Name belongs and...to advise and discuss with the Name the prospects and past results of syndicates on which he could be placed" and
(ii) Hobhouse LJ in Brown v KMR Services [1995] 4 All ER 598 at 633 to 634:
"to advise the Name which syndicates to join and in what amounts. This is a duty which has to be performed each year when the decisions have to be made for the following underwriting year. The advice therefore must cover both the selection of the syndicates and the amount of premium to be allocated to each. In selecting the syndicates regard must be had to the class of business in which the member wishes to become involved, to the quality of the individual syndicates, what business they write and to the sectors of the market to be covered...
"Further the agent must give the member such information as is necessary for the member to make a reasonably informed decision about the recommendations which the agent is making... But where a particular syndicate involves some additional risk it is incumbent upon the agent... to give an appropriate additional warning coupled with appropriate information."
(iii) Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2AC 145 at 170 as:
"[to] advise Names on their choice of syndicates, place Names on the syndicates chosen by them and give general advice to them."
Other duties fulfilled by members' agents are:
(i) explaining the structure of Lloyd's and the implications of membership;
(ii) advising Names on their suitability for membership and the requirements and regulations applicable to becoming a member;
(iii) advising and guiding Names through the election process;
(iv) dealing with any changes in a Name's OPL;
(v) dealing with the administration of the investment of a Name's personal and special reserve funds;
(vi) accounting to Names for the results of their underwriting, including payment of profit and collection of losses or interim cash calls.
In practice, policies vary between agents as to the minimum and maximum percentage of OPL which Names should have on syndicates. The final decision as to whether to join a recommended syndicate and for what line rests with the Name. During the Relevant Period, many existing Names increased the lines that they wrote.

The Role and Duties of a Managing Agent 
The principal role of a managing agent is to determine the underwriting policy of and to make arrangements for the transaction of insurance business by the syndicates it manages. Managing agents must appoint and supervise one or more individuals to be the active underwriters for each of their syndicates, pricing and accepting risks on behalf of the syndicate members, and placing reinsurance. The underwriter is a key figure in a syndicate.
The role of a managing agent includes the approval and supervision of arrangements for:
(i) the acceptance and pricing by the active underwriters of the risks to be underwritten and the receipt of the premiums agreed with brokers;
(ii) the agreement and settlement of claims made against the syndicate;
(iii) the negotiation and management of the syndicate's reinsurances;
(iv) the management of the investments held in the premiums trust fund on behalf of the syndicate;
(v) the management and control of the syndicate's expenses;
(vi) monitoring and controlling the premium income earned by the syndicate and taking reasonable steps to ensure that members' syndicate premium limits are not exceeded;
(vii) the maintenance of accounting records and statistical data for the syndicate and the preparation and audit of the syndicate's accounts;
(viii) making, where necessary, cash calls on members to provide for underwriting losses;
(ix) compliance with relevant domestic and overseas taxation and legislative requirements; 
(x) the approval of the premium for and effecting the reinsurance required to close each year of account; and
(xi) keeping members' agents informed of the progress of the underwriting account and providing further information as required. (Manual for Underwriting Agents 1971).

G. STRUCTURE OF NAMES' ASSETS AT LLOYD'S AND SOLVENCY REQUIREMENTS FOR UNDERWRITING
NAMES' ASSETS

Deposits
The Lloyd's deposit is held in trust by Lloyd's (governed by the Lloyd's Deposit Trust Deed or Lloyd's Security and Trust Deed). A separate deposit, known as the Lloyd's life deposit, is required if a Name underwrites life business.

Maintenance and Re-Confirmation of Deposits
The Corporation of Lloyd's carries out an annual check as at 31 December to see whether the value of a Name's Lloyd's deposit has been maintained. A Name will be required to make any shortfall good by the following 31 October. Names failing to comply are required to reduce their level of underwriting to an amount commensurate with the value of their deposit. Names must provide the requisite additional deposits if they wish to regain their former levels of underwriting.

Acceptable Assets for Deposit
A Name's deposit may be provided by means of certain specified assets including: bank guarantees or letters of credit, building society guarantees, cash, life assurance company guarantees and policies and certain other approved securities.

Special Deposits/Premium Limit Excess Deposit
Any Name exceeding his/her premium income limit in a particular year may be required to establish an additional Special Deposit in the form of a bank guarantee/letter of credit or cash. This will be held under an appropriate Deed but kept separate from the securities forming the Name's normal Lloyd's Deposit.

Personal Reserve Fund
This fund is a reserve of cash or certain specified investments, held under the terms of the Name's Premiums Trust Deed, which may be retained by a members' agent (at the agent's discretion) as a reserve against future liabilities and expenses from the Name's underwriting business carried on through the agent. This reserve may be built up by the members' agent retaining a proportion of the Name's profits.

The Special Reserve Fund 
The SRF enabled Names, within limits, to accumulate reserves from their underwriting profits, which, when transferred into the SRF would then be taxed only at the basic rate (rather than the higher rates) of income tax. Such reserves were to be used to meet underwriting losses. Payments into the SRF had to be approved by the Inland Revenue. Payments out of the SRF were required to be made to cover losses certified by the Inland Revenue, although payments could, within limits, be made on a provisional basis in respect of estimated losses. The SRF was required to be held on trust, with one trustee being the Corporation of Lloyd's, and the other being the Name's members' agent. (The SRF arrangements were changed with effect from the 1992 underwriting year).

Premiums Trust Fund 
Every member of Lloyd's is required to hold all premiums received by him/her or on his/her behalf in respect of any insurance business in a trust fund in accordance with the provisions of a trust deed approved by the Secretary of State for Trade and Industry. This requirement is imposed by section 83(2) of the ICA 1982.
Premiums trust fund monies can be used to pay any underwriting liabilities and any expenses incurred in connection with or arising out of underwriting. For these purposes liabilities include losses, claims, returns of premiums and reinsurance premiums, while expenses include any annual fee, commission and other remuneration of a member's underwriting agents, any tax liabilities arising in respect of the premiums trust fund or its income, and subscriptions and Central Fund contributions or levies imposed by the Council.
The premiums trust deed provided for separate treatment of overseas underwriting business, for which the Lloyd's American Trust Fund and Lloyd's Canadian Trust Funds have been established. Those trust funds received the premiums on US dollar or Canadian dollar denominated policies issued in any country by Lloyd's members and paid any losses, expenses, claims, returns of premiums, reinsurance premiums and other outgoings in connection with the member's American or Canadian dollar business respectively.
The way in which the assets described above are used as part of Lloyd's overall chain of security is described below. 

Lloyd's Chain Of Security
The purpose of security is to protect policyholders.

The First Link
The first link in the chain of security is the premiums trust funds. To protect the interest of policyholders all premiums are initially paid into premiums trust funds managed by the managing agent of the syndicate. Payments from these funds may be made to meet claims, reinsurance premiums or underwriting expenses: profit may not be distributed to Names unless and until the underwriting account for the year has closed, and therefore at or after the end of three years. In practice, the majority of claims are met from the premium trust funds.

The Second Link
The second link is Name's funds at Lloyd's which must be provided by the Name as security for his/her underwriting, as described above. Funds at Lloyd's comprise the three trust funds in which Name's assets may be held: the Lloyd's deposit, the Special Reserve Fund and the Personal Reserve Fund held under the terms of the premiums trust deed (see above). 

The Third Link
The third link is the personal wealth of individual Names. Each individual Name is required to show a minimum level of personal wealth, but Names are further liable to the full extent of their wealth to meet any claims arising from their underwriting business.

The Fourth Link
The fourth link is the Central Fund of the Society. The Fund is available to the Council of Lloyd's to meet Names' liabilities in connection with their underwriting at Lloyd's in the event of their default. The Fund is not for the protection of the Name, who remains responsible for his/her liabilities to the full extent of his/her wealth.
Other Assets
The other assets of the Society of Lloyd's are also available to meet underwriting liabilities in the last resort. 

11. THE REGULATORY BACKGROUND FOR THE AUDITING AND ACCOUNTING REGIME AT LLOYD'S
The following account of the Regulatory Background for the Auditing and Accounting Regime at Lloyd's is drawn from a statement of agreed facts. Where I have decided a matter in dispute between the parties this is shown in square brackets.

A. INTRODUCTION
I set out below the regulatory background for the auditing and accounting regime at Lloyd's. I also describe the procedures culminating in the production by Lloyd's of the statutory statements of business and the Globals.
The sections below take as their starting point, where applicable, the regime for the preparation of syndicate accounts and solvency audit as at 31 December 1977, which encompasses the closure by reinsurance to close of the 1975 year of account into the 1976 year of account. The sections below conclude by describing the regime for the year ended 31 December 1987, which encompasses the closure of the 1985 year of account into the 1986 year of account. The description of the procedures for the production of the statutory statements of business and globals covers the same period.

B. BACKGROUND TO THE AUDIT/ACCOUNTING PROCESS

Lloyd's Three Year Accounting System
Lloyd's operated a three year accounting system, under which the results of underwriting by a syndicate in any one year were normally not determined until a further two years had elapsed. As a general rule, distribution to Names of their proportions of the syndicate's profit could only be made after the end of the third year and then generally only when the relevant year of account had been reinsured to close. The composition of each syndicate was likely to vary year by year, and each year's trading was a separate venture. The accounts of each syndicate were, as a result of the three-year accounting system operated at Lloyd's, necessarily left open for the first and second year. A syndicate specialising in Personal Stop Loss operated a four year accounting system.

Reinsurance to Close
The closure of a year of account was effected by the payment of a premium (the RITC premium) in respect of the members' underwriting liabilities allocated to that year to reinsure these liabilities into the following year of account. If a decision was taken not to close the relevant year of account, the account was described as having gone into "run-off" and no RITC premium was payable. The subsequent two years of account over the three year accounting period that were not being (or entitled to be) closed were known as "open years". Thus the first two years of the three-year accounting cycle were "open years." If a syndicate year was not closed by RITC, that year was "left open". 
As reported in the Chairman's statement in the 1987 Globals, at the end of December 1987 there were 76 syndicates with a total of 120 years of account left open. Problems associated with asbestos and pollution risks, together with other US liability business, appear to account for the vast majority of the run-off years. 
In the 1980s, there was a growing number of syndicates which did not close their accounts at the end of their third year.
Against the payment of a RITC premium, all syndicate members' undischarged liabilities in respect of risks allocated to the relevant year of account (including liabilities in respect of RITC of any preceding year of account) were reinsured without limit in time or amount into a succeeding year of account of the same syndicate; they could also, on occasion, be reinsured to close into a later year of account or by another syndicate. When RITC was underwritten by the same syndicate, the premium was set by the managing agent of both syndicates, in conjunction with the underwriter, acting for the Names on both years of account.
The amount charged by way of premium was required to be equitable between Names on the reinsured and reinsuring syndicates, having regard to the nature and amount of the liabilities being reinsured. RITC into a subsequent year of the same syndicate was not treated as premium income for the purposes of premium income monitoring. The Syndicate Premium Income Byelaw (No 6 of 1984) dealt with circumstances in which RITC by a different syndicate would form part of premium income for premium income monitoring purposes.

Syndicate Accounts
The managing agent of each syndicate was required to prepare syndicate financial statements as at 31 December each year for the closing year of account and for the two subsequent open years and to arrange for them to be audited. The managing agent was required to send the financial statements, together with certain other specified information, to the Names on his syndicate, either direct or through the Names' members' agents. The requirements for the preparation and publication of syndicate accounts changed over the period 1978 to 1988.

The Solvency Test
Each Name at Lloyd's was required, under the provisions of the ICA 1982, to meet an annual solvency test (the Name level test). (The requirements for the years ended 31 December 1981 (and prior years) were contained in ss73-74 of the ICA 1974). In addition, all members of Lloyd's taken together had to satisfy a global annual solvency test (the global test). The requirements for the solvency test were sent out in the annual Instructions for the Guidance of Lloyd's Auditors (Audit Instructions) and Covering Letter to the Instructions for the Guidance of Lloyd's Auditors (Solvency Letter) prepared by Lloyd's, which included the basis on which the Names' liabilities were calculated, as approved by the Secretary of State DTI (Board of Trade in earlier years) pursuant to Section 83(5)(b) of the ICA 1982.
The paragraph in the earlier brochures (e.g. the 1979 and 1980 brochures) headed "Lloyd's Audit", which referred to a "rigorous audit conducted by a member of a panel of chartered accountants approved by the Committee of Lloyd's", referred to the annual solvency test. The phraseology in the brochure was changed in 1983.

The Name Level Test
Under the provisions of Section 83 of the ICA 1982, each Name was required to provide annually to the Committee/Council of Lloyd's and to the DTI a certificate of solvency in a prescribed statutory form, signed by an approved auditor. (The forms of certificate are set out in:
(i) The Assurance Companies Rules 1950 (1950 No. 533), paragraph 16;
(ii) The Lloyd's (Audit Certificate) Regulations 1982 (1982 No. 136), for the year ended 31 December 1981;
(iii) The Insurance (Lloyd's) Regulations 1983 (1983 No. 224) for the year ended 31 December 1982 and thereafter).
The certificate stated (inter alia) whether the value of the assets available to meet the Name's known and estimated future underwriting liabilities in respect of his/her insurance business at the previous year end was correctly shown in the Name's accounts, both assets and liabilities being calculated in accordance with the Audit Instructions. The Name would generally not be personally involved in carrying out the procedures for the Name level test, but might be required to provide further assets in the event of a solvency shortfall.

The Global Test
The solvency requirements in relation to insurance companies are set out in Section 32 of the ICA 1982, which implemented article 16 of the First Council Directive on Non-Life Insurance. Thus, the section provides that insurance companies shall maintain a margin of solvency of such amount as may be prescribed in accordance with regulations made for the purposes of that section. Section 32 is applicable to the "members of Lloyd's taken together": see Section 84(1) of the ICA 1982. Accordingly, all members of Lloyd's taken together had to satisfy a "global test"; i.e. the solvency margin requirements under the ICA 1982. For this purpose, the assets and liabilities of all the members of Lloyd's were aggregated. Assets included each Name's funds at Lloyd's, the assets in his/her premium trust funds, and certain other assets. Account was also taken of the assets and liabilities of Lloyd's in addition to the assets and liabilities of the Names: see Regulation 3(2) of The Insurance (Lloyd's) Regulations 1983. Such assets included, for example, the Central Fund. Liabilities were, in aggregate, those for the most recent closed year of account, the two subsequent open years and any run-off years of account.
The forms submitted annually to the DTI as part of the statutory statement of business included information as to the assets and liabilities of all members of Lloyd's taken together. In particular, from the SSOB for the year ended 31 December 1982, Form 9 required a consolidated statement of assets and liabilities of underwriting members of Lloyd's. Accordingly, in effect, the members of Lloyd's taken together had to pass a global annual solvency test. (Prior to 31 December 1982, Lloyd's was required under Section 74(1) of the ICA 1974 to deposit annually with the DTI a statement summarising the extent and character of the insurance business done by the members of Lloyd's. The form of statement was set out in The Assurance Companies Rules 1950 and required Lloyd's to confirm that it had received an audit certificate in respect of each Name).
For some years before the SSOB form required for the year ended 31 December 1982 became mandatory, Lloyd's had submitted voluntary returns to the DTI, in a form similar to the SSOB presented pursuant to The Insurance (Lloyd's) Regulations 1983, in addition to the statutory returns prescribed by The Assurance Companies Rules 1950.
The purpose of insurance company supervision, as enshrined in the ICA 1982, is (inter alia) to ensure that margins of solvency are complied with.

The Statutory Statement of Business
Lloyd's was required under Section 86(1) of the ICA 1982 (for the year ended 31 December 1981 and prior years, Section 74 ICA 1974) to lodge a statutory statement of business with the DTI every year, in the form prescribed by The Insurance (Lloyd's) Regulations 1983 (for the year ended 31 December 1981 and prior years, The Assurance Companies Rules 1950 (SI 1950/533)). The SSOB summarised the extent and character of the insurance business done by all members of Lloyd's in the twelve months to which the statement related. The SSOB certified solvency for the purposes of the global test described above and could not be filed unless unqualified audit certificates had been received in respect of each Name, taking account, if necessary, of any Central Fund earmarking which had occurred. 
The information required in order to complete the SSOB was provided principally by syndicate auditors in certain specified returns. 
The auditors made returns in the form in which Lloyd's from time to time required these to be made. In general the returns were a collation of the results shown in those syndicate accounts for which any particular firm of auditors was responsible.

The Global Accounts
Lloyd's reported annually to the market on the underwriting results for the third year of account.
Panel/Registered Auditors
Under Section 73(4) of the ICA 1974, and Section 83 of the ICA 1982, the accountants who audited the Names' results for the purposes of the annual solvency test had to be approved by the Committee/Council of Lloyd's. Lloyd's had accordingly established a panel of auditors from which managing agents and members' agents selected their auditors. In practice, the panel auditors were also those who audited the syndicate accounts.
[ The role of a syndicate auditor was consistently regarded as requiring special skill and experience. In some cases syndicates engaged two firms as joint auditors. The responsibility for selecting an auditor from Lloyd's panel – subsequently the approved list – lay with the managing agent, not the members' agent. The practicability of syndicate Names appointing the auditors was considered by Lloyd's but not adopted. Following changes in the system, members' agents appointed the auditors to issue Members' Solvency Reports.]
On 10 December 1984, the Council passed The Syndicate Audit Arrangements Byelaw (No. 10 of 1984) which set out arrangements for a new list of registered auditors, containing all persons entitled to act as syndicate auditors. The byelaw replaced the panel auditor arrangements, and included the criteria for admission to and removal from the list. In a letter to underwriting agents, active underwriters, market associations and panel auditors dated 11 December 1984, Lloyd's stated that the Council had resolved that in future approval of auditors for the purpose of the annual solvency test would be determined by reference to the inclusion of a firm's name on the list of recognised auditors.
The panel or registered auditors had an annual meeting with Lloyd's. Further meetings occurred from time to time on an ad hoc basis (for example on 15 January 1982, 24 February 1983 and 8 February 1984). In addition, the panel auditors used to meet informally to discuss Lloyd's accounting rules and other issues arising out of the audit of syndicate accounts and solvency audit. Representatives of panel audit firms also sat on the Accounting and Auditing Standards Committee.

C. SUMMARY OF DEVELOPMENTS IN THE LLOYD'S REGULATORY ENVIRONMENT

Departmental Structure Prior to the Lloyd's Act 1982
Prior to the passage of the Lloyd's Act 1982, Lloyd's statutory duties in relation to the solvency audit and the preparation of the SSOB were exercised by the Committee of Lloyd's. The Underwriting Agents and Audit Department (or Audit Department) was the department within Lloyd's responsible for day-to-day matters affecting the solvency audit and the preparation by Lloyd's of the SSOB. It supported the Audit Committee which in turn reported to the Committee of Lloyd's. 
The Committee was the governing body of Lloyd's until January 1983, after which it was subordinated to the Council.
Lloyd's also produced a Manual for Underwriting Agents, which set out the obligations of managing agents in relation to syndicate accounts and the solvency audit.

The Fisher Report and Lloyd's Act 1982
The regulatory structure within Lloyd's changed as a consequence of the Fisher Report, which was published in May 1980. The Fisher Report made certain recommendations as to the accounting regime and recognition of auditors as follows:
"71: Council to lay down rules as to minimum information to be disclosed in syndicate accounts and applicable accounting standards and principles.
72: Council to require audited syndicate accounts to be accompanied by a report by the Agent on matters of specific interest to Names.
73: Council to have the right to call for production of accounts and require a second audit to be carried out by accountants nominated by Council.
74: No Syndicate Auditor to be changed without Agent discussing proposed change with Committee.
75: Admission procedures for Panel Auditors."
The Fisher Report had appended to it a draft bill to amend the Lloyd's Acts 1871-1951. The draft bill, which received royal assent on 23 July 1982, provided for the establishment of a Council to manage and superintend the affairs of the Society, in place of the Committee, and proposed that the Council should have the power to make byelaws, including a byelaw:
"For requiring that annual accounts of underwriting syndicates be audited and that reports and audited accounts be furnished annually to members of the syndicate and for regulating the form and content of such reports and accounts."
The Lloyd's Bill was a much debated private measure and the enactment procedures took a considerable time. In November 1980 members, by a large majority, approved the promotion of a Bill. The Chairman wrote to members on several occasions thereafter reporting progress and soliciting continuing support.
As a consequence of the recommendations in the Fisher Report on the accounting regime and certain other comments made in the Fisher Report on the solvency audit, Lloyd's established two task groups, Task Group 4 and Task Group 15, in September 1980. Task Group 4's terms of reference were directed towards considering the provision of information to existing Names, with particular reference to syndicate accounts and accounting standards. Task Group 15's terms of reference included the consideration of procedures in relation to syndicate accounts, Lloyd's solvency test and global results, and all aspects of the "licensing" of panel auditors. It was recognised that the work of the two Task Groups was closely interrelated insofar as Task Group 15 was concerned with the audit of syndicate accounts.
Lloyd's established 21 Task Groups to consider the Fisher recommendations and their implementation. Lloyd's gave an undertaking to Parliament through counsel relating to (inter alia) paragraph 23.22 of the Fisher Report.
[The work of Task Groups 4 and 15 set up in September 1980 became part of the review in respect of which Lloyd's gave an undertaking to Parliament through counsel relating to the Fisher Report.]
In November 1982, Lloyd's set up, with the approval of the Bank of England and the DTI, a working party under the chairmanship of Mr. Ian Hay Davison, the managing partner of Arthur Andersen and Chairman of the Institute of Chartered Accountants. The overall aim of the working party was to review the requirements of the Lloyd's solvency audit with particular attention to both the information which should be sought by auditors and to the information which underwriting agents and underwriters should provide to their syndicate auditors; and to consider disclosure of interests by underwriting agents. In addition, the working party was required to review the annual Audit Instructions for the solvency audit. It was intended that the working party should consider urgently what changes should be implemented for the solvency audit as at 31 December 1982. It was announced that the working party hoped to provide some input for the 1982 audit while expecting to complete its study during 1983. It was noted in the terms of reference that it was essential to demonstrate that self-regulation was effective.
Task Group 4 issued its consultative document "The Annual Financial Report for Underwriting Members of Lloyd's" in December 1982, and attached to it a draft accounting manual, including proposed Statements of Lloyd's Accounting Practice. A letter from Lloyd's dated 21 December 1982 requesting comments on the document and summarising the points of difference between Task Group 4 and the Committee of Lloyd's was also circulated.
Mr Ian Plaistowe, a senior partner of Arthur Andersen, replaced Mr Hay Davison as chairman of the working party (renamed the Plaistowe working party) in February 1983 on Mr Hay Davison's appointment as Deputy Chairman and Chief Executive of Lloyd's. The work of the Plaistowe working party was built upon by the AASC.
Task Group 15 issued its consultative document "Lloyd's Auditing Manual" in 1983. The Task Group had taken as its starting point the draft accounting manual produced by Task Group 4 and had incorporated that into an overall accounting and audit manual. It also made recommendations as to the "licensing" of panel auditors.

Changes in Lloyd's Departmental Structure
In late 1983 the departmental responsibilities within Lloyd's changed. The Audit Committee and Audit Department were respectively replaced by the Members' Solvency and Security Committee and Members' Solvency and Security Department, and a new department and committee were established in October 1983: the Accounting and Auditing Standards Committee and, supporting it, the Accounting and Auditing Review Department. The terms of reference of the MSSC and AASC are set out in the minutes of the meeting of the Council of Lloyd's on 3 October 1983.
This reorganisation was one of a number of administrative and department changes which took place during the Relevant Period.
Under its terms of reference, the MSSC was responsible for making recommendations to the Committee of Lloyd's on all aspects relating to the annual solvency test and the protection of Lloyd's policyholders.
The AASC reported to the Council of Lloyd's. It effectively took over the work of Fisher Task Groups 4 and 15. Under its terms of reference, it was, in general terms, required to define the accounting and related auditing requirements applicable to Lloyd's brokers, underwriting agents and syndicates, the reporting of information to Names and the introduction of manuals to reflect the Council's requirements as to accounting and audit. It was also required to establish criteria for the approval or otherwise of panel auditors.
Although the AASC's terms of reference included the production of the annual Audit Instructions and their agreement with the DTI, in practice this responsibility remained with the MSSC. The MSSC liaised with the AASC in relation to accounting and audit considerations relevant to the conduct of the annual solvency test.
Both the MSSC and the AASC met about once a month to discuss matters falling within their terms of reference.
On 2 December 1983, Lloyd's published a Provisional Accounting Manual. The Manual relied heavily on the Draft Accounting Manual produced in December 1982 by Fisher Task Group 4 and the work done by the Plaistowe working party in relation to the Manual.
The Plaistowe working party was wound up in January 1984 and handed over much of its outstanding work to the AASC or MSSC.
A series of byelaws were issued by the Council of Lloyd's during 1984 and 1985 which established the revised accounting and auditing regime for syndicates as follows: 
(a) The 1983 Annual Reports of Syndicates Byelaw (No. 2 of 1984);
(b) The Disclosure of Interests Byelaw (No. 3 of 1984);
(c) The Syndicate Premium Income Byelaw (No. 6 of 1984);
(d) The Syndicate Accounting Byelaw (No. 7 of 1984) and explanatory notes dated 8 October 1984;
(e) The Syndicate Audit Arrangements Byelaw (No. 10 of 1984) and explanatory notes dated 10 December 1984;
(f) The Agency Agreements Byelaw (No. 1 of 1985);
(g) The Reinsurance to Close Byelaw (No. 6 of 1985); and
(h) Further explanatory notes to Byelaw No. 7 of 1984 relating to RITC, issued in December 1985.

1986 Audit Brief
While the new accounting byelaw regime was under discussion, Lloyd's approached the Auditing Practices Committee of the Consultative Committee of Accounting Bodies to propose that an audit brief be produced by the APC addressing the audit of Lloyd's syndicates. A working party of the APC was set up in 1984 to develop the audit brief, under the chairmanship of Mr Frank Attwood, a senior partner of Robson Rhodes, comprising members of the accounting profession and Mrs. Cathy Shorthouse, manager of the AARD in Lloyd's.
A draft brief was produced in about April 1985. Following discussions with the AASC, the draft audit brief was published in the autumn of 1985. The final audit brief was issued in April 1986. The Audit Brief stated that its purpose was to give "guidance on the special factors to be considered in the application of Auditing Standards to the audit of the financial statements of Lloyd's syndicates". Its status was as an informative publication, intended to assist auditors in the discharge of their duties. While it did not have the same authority as Auditing Standards or Auditing Guidelines, the Audit Brief was treated as the standard, in the absence of Auditing Standards or Guidelines dealing with any particular issue.
Statements of Lloyd's Accounting Practice featured in, for example, the 1983 Provisional Accounting Manual, but did not feature in the byelaw regime that was subsequently introduced.

The Neill Report
In January 1986, a committee was formed under the chairmanship of Sir Patrick Neill to consider whether the regulatory arrangements being established under the Lloyd's Act 1982 provided protection for the interests of Names comparable to that proposed for investors under the Financial Services Bill. The Neill Committee was a Committee of Inquiry set up by the Secretary of State for Trade and Industry. The Neill Report "Regulatory Arrangements at Lloyd's" was published in December 1986.
[The Neill Report made certain recommendations relating to syndicate accounting. The AASC was primarily responsible for reviewing the recommendations. The majority of the recommendations were implemented by The Syndicate Accounting Byelaw (No. 11 of 1987) which became effective on 1 January 1988 and first applied to syndicate accounts prepared for the year ended 31 December 1987. Further recommendations were implemented for subsequent years of accounts.]

Involvement of Professionals in the Task Groups, Working Parties and the AASC and MSSC
Fisher Task Groups 4 and 15 each had two members representing the auditing profession. Mr NF Holland and, from October 1980, Mr JA Philpott of Ernst & Whinney were members of Task Group 4. Mr M Wildig of Arthur Anderson & Co and Mr AM Blake of Neville Russell & Co were members of Task Group 15. In addition, Mr JA Philpott and Mrs C Shorthouse of Ernst & Whinney produced initial drafts of the report for the Task Group's consideration. Mrs Shorthouse subsequently joined Lloyd's permanent staff, and became manager of the AARD.
(According to Lloyd's the CCAB was invited to nominate a representative to join Task Group 15. Mr TD Marks of Deloitte Haskins & Sells was nominated and attended two meetings, with Mr GC Wintle, the CCAB's under-secretary for Parliamentary and Law affairs. However, following the formation by the CCAB of a Lloyd's sub-committee, and to avoid possible duplication of effort, it was agreed that it was sensible for the CCAB representation on the Task Group to cease.) 
The Hay Davison/Plaistowe working party was chaired initially by Mr Hay Davison, senior partner of Arthur Anderson & Co and subsequently by Mr I Plaistowe, also of Arthur Anderson & Co. In addition Mr C North Smith of Peat Marwick Mitchell & Co was a member of the working party.
The initial membership of the AASC included Mr C Brandon Gough of Coopers & Lybrand, as chairman, Mr I Plaistowe of Arthur Anderson & Co and Mr NF Holland of Ernst & Whinney. Mr Brandon Gough remained Chairman until 1986, when he was replaced by Mr A Hardcastle of Peat Marwick McLintock. Mr Plaistowe remained a member until 1986. Other members of the AASC included members of panel auditors. Mr Hardcastle became chairman of Lloyd's Regulatory Board when it was established.
The membership of the MSSC included two members drawn from the nominated or external members of the Council. From 1983 to 1985, Mr REM Elborne, of Elborne & Mitchell, solicitors, was one of these members.

D. THE ANNUAL AUDIT AND ACCOUNTING PROCESS
This section summarises the chronological process for the preparation of syndicate accounts, the solvency audit, the SSOB and the Globals for any particular year. The process broadly followed the same pattern throughout the period 1978 to 1988, and commenced in the summer of the year to which the solvency test was to apply (e.g. the summer of 1980 for the audit of syndicate accounts and the solvency test for the year ended 31 December 1980).

May-July 	Provision of settlement statistics to Lloyd's by managing agents. 	
August 	Settlement statistics sent by the Audit Department/MSSD to the DTI (and by the DTI to the Government Actuaries Department), and market associations for consideration. 	
Autumn 	Planning by syndicate auditors of the work required for the audit for the year concerned and preliminary audit of certain syndicate records and systems. 	
October/November 	Comments on the settlement statistics received from the DTI and market associations. 	
	Recommendations made by the Audit Department/MSSD to the Audit Committee/MSSC as to changes in the prior year's scales of minimum percentage reserves and Audit Instructions, incorporating comments from the DTI and market associations. 	
	Recommendations considered by the Audit Committee/MSSC. 	
October/November 	Meeting with panel auditors to advise them, inter alia, of material changes to the Audit Instructions. (For the 1984 solvency test and thereafter, this meeting moved to December/January). 	
November/December 	Recommendations as to minimum percentage reserves and other changes to the Audit Instructions considered by the Committee. 
Completion of planning and preliminary work by syndicate auditors. 	
December 	Scales of MPRs approved by the Committee and communicated to underwriting agents and panel auditors, subject to final approval by the DTI. 	
	Scales of MPRs sent to and discussed with the DTI/Government Actuaries Department.	
December/January 	Syndicate auditors commenced main audit to reach a conclusion on the syndicate accounts and Names' personal accounts. 	
January/February 	Final approval of Audit Instructions by the DTI. Audit Instructions and Solvency Letter printed and circulated. 	
March/April 	Review by syndicate auditors of RITC and completion of work required for solvency audit. 	
end April 	Submission of syndicate results for solvency purposes to Lloyd's. 	
end May 	Individual Names' solvency certificates completed and provided to Lloyd's and the DTI. 	
May/June 	Approval and signature by managing agent of syndicate accounts. Subsequently, signature by syndicate auditors of audit report containing their opinion on the accounts. 	
early June 	Filing of returns by syndicate auditors (managing agents for the 1987 year end) required by Lloyd's for the production of the SSOB and Globals. 	
mid June 	Despatch by managing agents of syndicate accounts to direct Names and members' agents. (Prior to the accounts for the year ended 31 December 1983, which were required by Byelaw No. 2 of 1984 to be despatched by 15 June 1984, there was no specific date for despatch of syndicate accounts). 
Filing of syndicate accounts with Lloyd's (for the year ended 31 December 1983 onwards). 	
mid July 	Despatch by members' agents of syndicate accounts to Names. 	
end August 	Completion and filing of SSOB. 	
early September 	Publication of Globals. 	

The following should be noted:
(i) the sub-division of "All Other" non-marine statistics into three currencies took place in 1981, and it was possible to obtain the historical figures within those currencies;
(ii) from time to time, the categories within which the figures were collected were changed by Lloyd's;
(iii) MPRs were regularly considered by the Audit Committee/MSSC and the Committee;
(iv) concerns were expressed from time to time at meetings of the Audit Committee/MSSC that if the percentages for the US$ "All Other" class of business were set too high, syndicates writing shorter-tail business within that class would be disadvantaged;
(v) Lloyd's made it clear to the DTI, and in the Audit Instructions, that the percentages were absolute minima (The Solvency Letter for the 1984 year end expressly states, at note (i)(a) to clause 6, that: "The scales of minimum percentage reserves represent the absolute minimum requirement for any syndicate."); and
(vi) the settlement statistics were compiled on the basis of net figures.

E. DUTIES OF THE AUDITOR AND THE AUDIT PROCESS

The Annual Audit Process
There were two separate (although related) aspects of the annual audit work carried out by the panel or registered auditors:
(i) the audit of syndicate accounts prepared by the managing agents. In this context the auditors' report was addressed to the members of the syndicates themselves; and 
(ii) the annual solvency audit whereby auditors were obliged to report annually to Lloyd's and the DTI on the solvency of the Names.

(a) Audit of Syndicate Annual Accounts or Financial Statements
The first major function performed by syndicate auditors was the audit of the syndicate annual financial statements.
The Manual for Underwriting Agents, first published in 1971, required managing agents to send to Names underwriting accounts and a balance sheet and stipulated that syndicate auditors should be required to certify:
"(a) That in their opinion the books have been properly kept.
(b) That they have examined the Balance Sheet and Underwriting Accounts with the books and that they have been properly drawn up in accordance with the books.
(c) That they have verified the investments and cash balances.
(d) That they have received all the information and explanations they have required".
The Manual went on to say:
"The Agents and their Auditors may amplify, to any extent required, to cover such items as (a) the basis on which the Auditor has accepted the reinsurance to close, (b) the fact that the Audit Certificate has been sent to the Committee of Lloyd's and (c) the accounts are drawn up in accordance with the Agency Agreements." 
The requirement to report in "true and fair" terms was introduced by The Syndicate Accounting Byelaw (No.7 of 1984). This requirement applied to all accounts for the year ended 31 December 1985, although some auditors reported in "true and fair" terms on the accounts for the year ended 31 December 1984. The "true and fair view" report was required in respect of the profit or loss on the closed year of account. No such report was required in relation to the two open years of account, on which the auditors also reported, but in different terms.
The Syndicate Accounting Byelaw (No.11 of 1987) revised the Lloyd's syndicate accounting rules which governed syndicate accounting and reporting to Names. In accordance with this byelaw the managing agent was required to prepare adequate documentation supporting the basis on which the RITC had been determined. The auditors' duties in respect of this were as follows:
"the syndicate auditor shall in preparing any report under this paragraph carry out such investigations as will enable him to form an opinion as to the following matters:
(i) whether the managing agent has kept proper accounting records in respect of the syndicate;
(ii) whether the managing agent has in respect of the syndicate established and maintained such systems and procedures, including maintenance of adequate accounting and other records, as are necessary to enable it to comply with the requirements of paragraph 4 of Schedule 4 to this byelaw; and
(iii) whether the annual report or personal account to which his report relates is in agreement with the accounting records and such other records as are referred to in (ii) above;
and if the syndicate auditor is of the opinion that the managing agent has not kept proper accounting records in respect of the syndicate, or has not established and maintained such systems and procedures (including maintenance of adequate accounting and other records), ...or if the annual report or any personal account to which the syndicate auditor's report relates is not in agreement with the accounting records and such other records as are referred to in (ii) above, the syndicate auditor shall state that fact in his report."

(b) Solvency Reporting
The annual solvency audit of underwriting members of Lloyd's was a statutory requirement. This was, until 28 January 1983, provided for under Section 73(4) of the ICA 1974 which provided that:
"The accounts of every underwriter shall be audited annually by an accountant approved by the Committee of Lloyd's or the managing body of the association, as the case may be, and the auditor shall furnish a certificate in the prescribed form to the Committee or managing body and the Secretary of State."
This section was replaced by Section 83(4) of the ICA 1982 which was in substantially similar terms. 
The content of the audit certificate was addressed by Section 73(5) of the ICA 1974 which provided:
"(5) The said certificate shall in particular state whether in the opinion of the auditor the value of the assets available to meet the underwriter's liabilities in respect of insurance business is correctly shown in the accounts, and whether or not that value is sufficient to meet the liabilities calculated:
(a) in a case of liabilities in respect of long term business, by an actuary; and
(b) in the case of other liabilities, by the auditor on a basis approved by the Secretary of State."
The mandatory form of wording of the certificate to be issued in respect of each underwriting member of Lloyd's was set out in The Lloyd's (Audit Certificate) Regulations 1982 (1982 No.136), (Prior to the 1981 solvency test, the Assurance Companies Rules 1950 (1950 No. 533)). This had been made by the Secretary of State in the exercise of his powers under Sections 73(4) and 85(1) of the ICA 1974. With effect from 22 March 1983 the 1982 Regulations were replaced by The Insurance (Lloyd's) Regulations 1983 (1983 No.224) which (so far as is material) were in substantially similar terms to the 1982 regulations. The wording of the certificate (the Members' Solvency Report) in the 1982 regulations was as follows: 
"2. The certificate mentioned in section 73(4) of the Insurance Companies Act 1974 (which requires the accounts of every underwriter to be audited annually by an accountant approved by the Committee of Lloyd's) shall, in respect of the audit as at 31 December in the year 1981 and in each subsequent year, be in the following form:
UNDERWRITING ACCOUNTS
IN THE NAMES OF
Through the agency of
To the Committee of Lloyd's and to the Secretary of State
INSURANCE COMPANIES ACT 1974
We have examined the accounts relating to the insurance business carried on by the above-mentioned Underwriters through the above-named Agency during the year ended 31st December 19 .. .., in accordance with the current Instructions for the guidance of Lloyd's auditors drawn up by the Committee of Lloyd's and approved by the Secretary of State.
In connection with our examination, we have relied upon a report in respect of the underwriting accounts from accountants approved by the Committee of Lloyd's as auditors of each syndicate in which each underwriter has participated during that year stating that in their opinion all assets have been valued and all liabilities have been calculated in accordance with the said Instructions (liabilities in respect of long term business having been calculated by an actuary) and that the profits or losses arising on the closed accounts and the surpluses or deficiencies arising on the open accounts have been allocated to each Underwriter in accordance with the arrangements for his participation in each such account.
In our opinion the value of the assets, valued in accordance with the said Instructions (in the case of each Underwriter's Lloyd's Deposit, as certified by the Committee of Lloyd's), available to meet each Underwriter's liabilities in respect of his insurance business is correctly shown in the accounts and is sufficient to meet his liabilities in respect of that business.
Date this .. .. .. .. day of .. .. .. .. 19.. ..
Accountants approved by the Committee of Lloyd's."
With effect from the 1981 solvency test, the solvency certificate was issued not by the syndicate auditors but by auditors appointed by the members' agents in respect of those Names underwriting through that members' agency. The members' agents' auditors were not required to audit further the affairs of all the syndicates on which the members' agents had placed Names. The wording of the audit report expressly permitted them to rely on certificates issued by the syndicate auditors. The certificate issued by the syndicate auditors for these purposes (the Syndicate Solvency Report) was in the following terms:
"Syndicate solvency report
This report is in respect of the Underwriting Members who participated in the ............................... Account(s) of Syndicate 
No: - ........................
To the Committee of Lloyd's
We have examined the accounting records relating to the insurance business carried on by the above Underwriters during the year ended 31 December, 1981 in accordance with the current Instructions for the guidance of Lloyd's auditors drawn up by the Committee of Lloyd's and approved by the Secretary of State.
In our opinion:
(a) the profit or loss of the closed Underwriting account and the estimated surplus or deficiency of the open Underwriting accounts have been arrived at after valuing all assets and calculating all liabilities in accordance with the current Instruction for the guidance of Lloyd's auditors drawn up by the Committee of Lloyd's and approved by the Secretary of State; and
(b) such profit or loss and surplus or deficiency have been allocated to each Underwriter in accordance with the arrangements for his participation in each Underwriting account and are as set out in the attached schedule.
Dated this day of 1982
Accountants approved by the Committee of Lloyd's"
With effect from the 1981 solvency test:
(i) the syndicate auditor reported on the solvency position at a syndicate level, Name by Name to Lloyd's and to the auditors appointed by the members' agents;
(ii) the members' agents' auditors completed the solvency test at individual Name level, relying on the Syndicate Solvency Reports prepared by the auditors of all the syndicates in which each of the members' agency Names participated. The reports of the members agents' auditors were addressed to and sent to the DTI and the Committee/Council of Lloyd's.

Professional Standards
Panel and registered auditors were subject to broader professional standards, being certain relevant auditing standards and guidelines that applied to the profession.
The following conclusions can be drawn from the Merrett Judgment as to the duties of the auditors in relation to syndicate accounting and the solvency audit:
(i) the auditors should obtain relevant and reliable audit evidence sufficient to enable them to draw reasonable conclusions therefrom;
(ii) as to the nature of audit evidence, the sources and amount of evidence needed to achieve the required level of assurance were questions for the auditors to determine by exercising their judgment in the light of the opinion called for under the terms of their engagement. They would be influenced by the materiality of the matter being examined, the relevance and reliability of evidence available from each source and the cost and time involved in obtaining it;
(iii) as to representations by management, in certain cases, such as where knowledge of the facts was confined to management or where the matter was principally one of judgment and opinion, the auditors might not be able to obtain independent corroborative evidence and could not reasonably expect it to be available. In such cases, the auditors should ensure that there was no other evidence which conflicted with the representations by management and should obtain written confirmation of the representations;
(iv) from the year ended 31 December 1985, the audit report on the syndicate accounts should state whether a true and fair view was given on the results of the closed year (although some auditors also reported in true and fair terms on the 31 December 1984 accounts);
(v) the syndicate auditors should qualify their report if they were unable to obtain all the necessary information and explanations required. In the absence of a reference to these matters the syndicate auditors' confirmation thereof was implicit in an unqualified audit report;
(vi) in selecting materiality levels, the auditor should have regard to the impact of syndicate transactions on the personal account of each syndicate member; he should look behind the syndicate to its constitution, as well as to the syndicate as a whole, in making judgments relating to materiality;
(vii) the auditor would need to be satisfied that the premium for the reinsurance to close a year of account was equitable as between the Names on that account and those on the accepting year of account. The determination of the premium for the reinsurance to close involved the exercise of significant professional judgment and drew on the full experience of the underwriter;
(viii) since, from at least 31 December 1985, the audit report on syndicate financial statements was to be expressed in true and fair terms, the auditor would need to ensure that he had gathered evidence of sufficient quality to support such an opinion;
(ix) in relation to the reinsurance to close, the audit approach should recognise that the objective was to ensure that the reinsurance to close was within a zone of reasonableness rather than an arithmetically accurate figure;
(x) the auditor would need to consider such matters as the nature of the syndicate's business, the overall size of the syndicate, the impact of the reinsurance protection programme, and the accuracy of previous estimates as a part of his assessment of the appropriate range within which he would expect the premium for the reinsurance to close to fall;
(xi) the results derived from statistical techniques should be treated with a degree of caution, since historically derived data might not be an accurate guide as to uncertain future events. The auditor should, therefore, ascertain from the underwriter the underlying basis for his estimate of claims incurred but not reported, so that appropriate additional evidence could be collected to support the computation; and
(xii) other matters the auditor might consider as a part of the audit of the reinsurance to close included matters specific to the particular syndicate's business, for example, the syndicate might have reinsured the run-off of other syndicates or companies and the auditor must satisfy himself that due account had been taken of the liabilities which were likely to arise under such contracts. This evidence would usually take a similar form to that relating to the syndicate's own business.

F. REGIME FOR SYNDICATE ACCOUNTS

Regime Prior to Lloyd's Act 1982
Prior to the passage of the Lloyd's Act 1982 and subsequent byelaws, the obligations of agents with regard to syndicate accounting were set out in the Manual for Underwriting Agents. The Manual was first published in 1971, and reprinted in 1980, incorporating all the amendments that were then current. Further amendments were made thereafter. Among the main duties of agents set out in the Manual in this respect were:
(i) to effect the Reinsurance to Close (with discretion to keep an account open) (A3, para 1 (i) (d));
(ii) to accept responsibility for the underwriting and the records (A3, para 1(i) (f));
(iii) to keep Names informed of the progress of the underwriting and to arrange to provide annual audited accounts to them (A3, para 1(ii) (d)).
The duties of the managing agent with regard to the syndicate accounts and, in particular, the basic accounting procedures to be followed were set out in Section A10 of the Manual (Section A9 of the 1971 Manual for Underwriting Agents).
The agent also had certain obligations as to syndicate accounts in the Underwriting Agency Agreement (Paragraph 9(A) and (B) of Underwriting Agency Agreement). The agent was obliged to keep "such usual and proper underwriting books accounts and memoranda as are kept by Underwriting Agents at Lloyd's" and to send to the Name a copy of the accounts as soon as practicable after the end of each calendar year. 
There was no requirement in the Manual for underwriting agents to send copies of syndicate accounts to Lloyd's.
The managing agent selected the auditor appointed to audit the syndicate accounts from the panel of auditors. A syndicate auditor auditing the syndicate's accounts also undertook the audit required under the Audit Instructions for the purposes of the solvency audit.
The managing agent was also responsible for maintaining the syndicate's books and records. Occasionally, some managing agents appointed a firm of accountants to maintain their books. An accounting firm maintaining the books and records of a syndicate was not permitted to audit its accounts or conduct the solvency audit. This restriction was set out in the Solvency Letter circulated with the annual Audit Instructions. Such an accountant was, however, permitted to act jointly with another firm, in which case both firms were required to sign the Audit Certificate or, for the 1981 solvency test and thereafter, the Syndicate Solvency Report required by the Audit Instructions.

Developments Following the Passage of the Lloyd's Act 1982
In December 1983, Lloyd's circulated the Provisional Accounting Manual to active underwriters, underwriting agents, market associations and panel auditors. In his covering letter dated 2 December 1983, Sir Peter Green stated that it had been decided not to make the Manual mandatory in respect of the accounts to 31 December 1983, in view of the short time available to the end of the year and the practical problems that might be faced in seeking to comply with the requirements for the first time. However, the provisions of the Manual were considered to be best practice. Mr. Peter Miller then wrote to panel auditors on 1 February 1984 enclosing a form of audit report and expressing the hope that auditors would encourage their clients to comply with the spirit of the Manual in preparing the 1983 syndicate reports. He also expressed the hope that auditors would at a minimum be able to report in the terms of the draft audit report. The notes to the syndicate annual report were to include a statement of the extent to which the annual report complied with the Provisional Accounting Manual.
The Provisional Accounting Manual required managing agents to prepare syndicate accounts comprising:
(i) separate underwriting accounts for the closing year of account and each open year;
(ii) a balance sheet;
(iii) notes to the accounts;
(iv) a personal account for each Name;
(v) a managing agent's report;
(vi) an underwriter's report;
(vii) a seven year summary of syndicate results; and
(viii) an audit report on the items in (i) to (iv) above.
On 13 February 1984, the Council passed The 1983 Annual Reports of Syndicates Byelaw (No. 2 of 1984). The byelaw imposed an obligation (enforceable by disciplinary measures) on managing agents to prepare audited syndicate accounts for the year ended 31 December 1983. The byelaw specified the contents of the accounts, which were the same as those required under the Provisional Accounting Manual, with the exception of the seven-year summary, and the timing for their completion and circulation to Names (direct or through members' agents) and to Lloyd's. Lloyd's itself was required to maintain a central file of syndicate annual reports, which were to be available to public inspection. The byelaw was a transitional byelaw and, in light of the provisional nature of the Manual, did not prescribe a standard form for audit reports, nor specify matters to be dealt with therein. A letter introducing the byelaw was sent by the Chairman to active underwriters, underwriting agents, market associations and panel auditors on 14 February 1984. The Chairman expressed the view that the requirement of the byelaw for the preparation of descriptive reports commenting on business transacted, future prospects etc., merely codified existing "best practice". 
In addition, on 9 April 1984, the Council passed The Disclosure of Interests Byelaw (No. 3 of 1984) which required managing agents to disclose in the annual report details of agents' interests in syndicate transactions. The audit report on the syndicate accounts was also required to cover the disclosure of interests statement. This byelaw was applicable to syndicate accounts for the year ended 31 December 1983 onwards.
On 8 October 1984, The Syndicate Accounting Byelaw (No. 7 of 1984) was passed by the Council. This byelaw set out the requirements for the preparation and audit of syndicate accounts for the year ended 31 December 1984 onwards and for the preparation and audit of individual Names' personal accounts. It contained full details as to the contents, timing, publication and circulation of syndicate accounts, and provisions relating to the accounting records to be maintained by syndicates, the accounting policies to be employed and the contents of managing agents' and underwriters' reports.
Byelaw No. 7 of 1984 introduced the requirement that syndicate auditors should report whether the syndicate accounts and members' personal accounts gave a true and fair view respectively of the profit and loss of any year of account closed at the relevant accounting date and the net result of the Name. The true and fair view requirement was only mandatory for the accounts prepared as from the year ended 31 December 1985, although some auditing firms did report in true and fair terms for the accounts for the 1982 year which closed as at the year ended 31 December 1984. This approach was encouraged by the Council of Lloyd's (See letter from Lloyd's dated 10 January 1985). Specific provisions relating to the audit of the accounts are set out in paragraph 11 of the byelaw.
The byelaw set out in schedule 3, paragraph 4, the requirement for equitable treatment as between syndicate members where items affected more than one year of account. Specifically, it made explicit the requirement that the RITC premium was to be equitable between reinsured and reinsuring Names on the same syndicate.
The byelaw provided for the Council to prescribe dates by which syndicate annual reports and accompanying documents were to be dispatched. As from the accounts for the year ended 31 December 1984, the dates prescribed were: 15 June for despatch by managing agents to members' agents, direct Names and Lloyd's; and 15 July for despatch by members' agents to Names. These were also the dates required by Byelaw No. 2 of 1984 in respect of the accounts for the year ended 31 December 1983.
Explanatory notes to Byelaw No. 7 of 1984 were issued with the byelaw and provided further details and explanation on the requirements of the byelaw. The explanatory notes commented on the true and fair view requirement and the requirement for equitable treatment between Names participating in more than one year of account, in paragraphs 11 and 51, respectively. 
On 9 December 1985, Lloyd's published Further Explanatory Notes to Byelaw No. 7 of 1984. These notes were intended as a practical guide to managing agents and underwriters as to the procedures and documentary standards they should adopt in computing the RITC. They emphasised the factors to be addressed in determining the RITC but not the manner in which the underwriter should exercise his professional judgment in relation to his particular syndicate.
[The AARD instituted an annual review of the syndicate accounts submitted to Lloyd's commencing with the 31 December 1983 accounts to check that the formal requirements of Byelaws No. 2 of 1984 (for 1983) and No. 7 of 1984 (for 1984 and following) had been complied with and that key terms in the syndicate accounts reconciled with the equivalent items in the SSOB and Global accounts.]
Further changes to the regime were effected by The Syndicate Accounting Byelaw (No. 11 of 1987), which applied to syndicate accounts for the year ended 31 December 1987 and thereafter.

Determination of RITC
The Further Explanatory Notes stated in paragraph 5: 
"In relation to a closed year of account the overriding requirement of the byelaw is that the annual report should give a true and fair view of the profit or loss, such profit or loss having been determined after charging the reinsurance to close the year of account in question. Determination and presentation of the reinsurance to close is therefore of significant importance in ensuring that a true and fair view is given." 
When, as was typically the case, the RITC for any particular year of account was underwritten by the same syndicate, the premium was set by the managing agent of both syndicates, in conjunction with the underwriter, acting for the Names on both years of account. The overall responsibility for setting the RITC rested with the managing agent who derived his authority to do so from the terms of the Underwriting Agency Agreement and, from 1 January 1987, from the agency agreements made pursuant to The Agency Agreements Byelaw (No. 1 of 1985).
[The managing agent/underwriter were concerned to determine the premium for RITC by reference to the syndicate's total estimated outstanding liabilities (including reserves for IBNR) in respect of risks allocated to the closing year of account, including undischarged reserves from previous years which had been closed by RITC into that year of account. The underwriter exercised his professional judgment in setting the RITC, taking into account the particular circumstances of the individual syndicate and years of account.]
The amount charged by way of premium was required to be equitable between the Names on the reinsured and reinsuring syndicates, having regard to the nature and amount of the liabilities being reinsured. Although this requirement was first made explicit in Byelaw No. 7 of 1984, it was a requirement for RITC for prior years.
[The Further Explanatory Notes, to which I refer, set out procedures relevant to compliance with the provisions of the Lloyd's accounting rules relating to the reinsurance to close and, in particular, those dealing with accounting records. They also set out the factors relevant in determining the reinsurance to close, including known outstanding claims and IBNR. The Further Explanatory Notes emphasised the exercise of the underwriter's judgment in determining the IBNR element, identifying the nature of the business written by the syndicate as one of the main factors affecting the size and relative importance of the IBNR element, the syndicate's loss experience and its reinsurance protection as matters which might fall to be taken into account.]
The Further Explanatory Notes set out the records that should be kept by the syndicate in order that the RITC calculation was supported by records in sufficient detail to "show and explain" the nature of the RITC. Overall, the underwriter was to have regard to the particular circumstances of his syndicate in carrying out the exercise, while it was noted that the syndicate auditors would review the documentation of the RITC as part of their audit of the accounts.
The Inland Revenue also took an interest in the calculation of the RITC. It was emphasised in annual letters accompanying the scales of MPRs recommended by the Committee for the purposes of the solvency test, that the Inland Revenue might, as in the past, require to be satisfied for purposes of taxation that the RITC premium was not excessive. In a letter to underwriting agents dated 17 December 1984, Mr Frank Barber, as Deputy Chairman, stated the following: 
"Calculation of the 'right' price at which reinsurance to close is to be effected is a complex exercise in which a great many factors including equity between Names, have to be taken into account. The 'price' must be neither excessive nor inadequate and getting it 'right' involves a considerable exercise of judgment. This has to be a commercial judgment and the exercise of that judgment should not be influenced by tax considerations. 
It is, however, important for tax purposes that the judgment can be shown to be well-founded. This requires evidence. If there is no evidence to justify the figure arrived at, that figure will be no more persuasive for tax than one that is plucked from the air."
The letter continued by describing the types of evidence that should be kept.

Run-off Accounts
The agent also had power not to close the year of account by RITC at all, but to leave it in run-off (Clause 9(F) of Underwriting Agency Agreement and The Agency Agreements Byelaw (No. 1 of 1985)). This would happen where the managing agent was unable to fix a premium which was equitable as between the reinsured and the reinsuring Names. In these circumstances, closure of the year of account might take a number of years. The managing agent had a duty to leave a syndicate year open where an equitable RITC could not be fixed.

G. REGIME FOR SOLVENCY AUDIT
The Manual for Underwriting Agents imposed an obligation on agents to comply with the Audit and other regulations (A3, para 1(i)(e)). The obligation was also set out in the typical Underwriting Agency Agreement at paragraph 9(A). The procedures to be followed by managing and members' agents for the audit of Names' accounts for the purpose of the solvency test were set out in Section F of the Manual and in the Audit Instructions and Solvency Letter. The Audit Instructions and Solvency Letter were updated every year and, following approval by the Committee of Lloyd's and the DTI, circulated to active underwriters, underwriting agents and panel or registered auditors.

Calculation of Audit Reserves
The Audit Instructions included rules relating to the calculation of the estimated cost of winding up the underwriting accounts for the year to which the solvency test applied and previous years (the audit reserves). These rules were approved annually by the DTI for the purposes of Section 83(5) of the ICA 1982 (previously s73(5) of the ICA 1974). Although Section 83(5) of the ICA 1982, and, previously, Section 73(5) of the ICA 1974, were expressed in terms which required the auditor to calculate the syndicate's liabilities, it was, essentially, the role of the managing agent, the role of the auditors being to review the calculation as part of their work on the solvency test. The Audit Instructions were clarified over the years to reflect this distinction in roles.
The tests for the audit reserves in relation to each category of business were set out in clause 6 of the Audit Instructions. For the year then in its third year of account at 36 months of development and any years of account in run-off, including, in each case, all years reinsured into it, the audit reserves were required (for most categories of business, including non-marine "All Other" business) to be the greater of the following:
(i) the application of a specified multiple to the net premium income for the respective year of account. The multipliers were known as the minimum percentage reserves. (For the oldest year of account specified in the Audit Instructions, which was expressed to include all previous years of account, there was an alternative test of outstanding liabilities, including IBNR);
(ii) the total of the outstanding liabilities on each year of account in question as at the year end for the solvency audit, including IBNR; or
(iii) the amount of the RITC for the closing year of account, including any previous years reinsured into that account. (This test did not apply to years of account in run-off).
It is to be noted that:
(i) there was little practical distinction between tests (ii) and (iii);
(ii) the calculation of the reserve figure under test (ii) (or the amount of the RITC under test (iii)) required consideration of the ultimate cost of settling the syndicate's liabilities; and where a year was not being closed, because it was considered that an equitable RITC could not be set, audit (i.e. solvency) reserves nonetheless had to be calculated.
Although, for the two open years then at the 12 and 24 month stages of development, the test was based on the MPRs, managing agents, when certifying the adequacy of the audit reserves, were required to "examine the Audit Reserves in the light of past run-off statistics and other relevant facts available to them" (Manual for Underwriting Agents (Section F, 1.8(ii)). In addition, the fact that the MPR scales represented the minimum requirement was emphasised in the Audit Instructions for the 1984 solvency test. From November 1980 onwards, underwriters at interest had available to them the information of the AWP in the form of (inter alia) attorneys reports; market letters from the AWP; (from late 1981) computer print-outs produced from the database created in the United States; and other information contained at (initially) the offices of Elborne Mitchell, and subsequently the offices taken by the AWP and then Toplis and Harding (Asbestos Services) Ltd.
In order to establish the MPRs, which were prepared on the basis of market averages, the Audit Department/MSSD obtained from underwriters in the summer of the year for which the solvency audit was being done (e.g. the summer of 1980 for the year ended 31 December 1980) details of net premiums received, and net settlements paid, by each syndicate during the preceding calendar year on a year of account basis. The net premium income and settlement figures on each year of account excluded any RITC premium received by the account from a previous closed year and premiums and claims relating to any previous closed year that might have been reinsured therein. The data were combined into the "Annual Review of Audit Reserves - Settlement Statistics" which set out, by class of business a market wide statistical analysis (in percentage terms) of net settlements which had arisen in previous years against net premiums received. The Audit Department/MSSD used the statistical analysis for the purpose of its recommendations as to the appropriate levels of MPRs for the relevant year's solvency test across all years of account in respect of which the Names' liabilities were to be calculated. Subject to the DTI, the final decision was taken by the Committee after reviewing the Settlement Statistics Packages.
As to the MPRs for the years 1970 to 1987 for non-marine "All Other" US$ business, the non-marine "All Other" category of business contained the widest range of types of risk, and was defined by exclusion as being non-marine risks which did not fall within the classes of non-marine "short tail" business, a list of which was set out in the notes to Clause 6 of the Audit Instructions. Which of the tests set out above was applied for the calculation of audit reserves for the purposes of the solvency test depended upon the circumstances of the individual syndicate and the categories of business it underwrote.

Approval Process
The Audit Department/MSSD provided copies of the Settlement Statistics to the DTI and the market associations for consideration. The DTI in turn provided copies to GAD which analysed the statistics on an actuarial basis against historical information and the statistics it had available from the insurance companies under the DTI's supervision.
The Audit Department/MSSD then put its recommendations to the Audit Committee/MSSC, with details of the comments received from the DTI and the market associations. After the Audit Committee/MSSC had approved the recommendations (with amendments if required) they were put to the Committee of Lloyd's for approval.
The Audit Department/MSSD also reviewed the rest of the Audit Instructions and Solvency Letter to determine whether any other changes should be recommended. These recommendations were also put to the Audit Committee/MSSC for consideration and then to the Committee for approval.
A meeting of the panel auditors was held towards the end of the process attended by representatives of the Audit Committee/MSSC and Audit Department/MSSD. This was a regular annual meeting at which the panel auditors were informed of any material changes to the Audit Instructions and any other material developments in the audit/accounting process. At the Panel Auditors meeting in November 1981, asbestosis was discussed under the heading "Any Other Business." It was agreed at that meeting to hold a further meeting in the new year in order to discuss the subject again, and the meeting took place on 15 January 1982.
Final approval by the Committee of the Audit Instructions took place thereafter on the basis of the recommendations put forward by the Audit Committee/MSSC. The Committee approved, inter alia, the dates for completion of the annual solvency test, changes to the Audit Instructions and Solvency Letter and the scales of MPRs. 
The MPR scales approved by the Committee were then sent to the DTI, following which discussions between Lloyd's and the DTI/GAD as to the final levels could take several weeks. Once the Audit Instructions had been formally approved by the DTI they were printed and issued to active underwriters, underwriting agents and panel or recognised auditors.
It was usual practice to advise underwriting agents, active underwriters and panel auditors by letter of the year end requirements as soon as they had been approved by the Committee on the basis that they had not yet received the approval of the DTI, and were therefore subject to possible amendment.

Role of Auditors

(a) Division of Responsibilities Between Syndicate Auditors and Auditors Appointed by Members' Agents
Prior to the solvency test for the year ended 31 December 1981, the syndicate auditor was responsible for the production of the Audit Certificate for each Name required under s 73 of the ICA 1974. In some cases (where an individual members' agent managed its proportion of the syndicate premium trust fund) the Audit Certificate was produced by the auditor appointed by that agent, not by the syndicate auditor.
Prior to the introduction of a centralised computer system (the Central Solvency System) in 1981, Lloyd's itself had no direct involvement in the conduct of the annual solvency test of Names, other than in the case of funds held centrally by Lloyd's (i.e. Lloyd's Deposits and Central Fund) the availability of which for earmarking would be confirmed to the auditor by the Audit Department. The Audit Department did, however, supply all necessary forms and, before the solvency test for 1978, acted as a 'postbox' for the statements of estimated outstanding liabilities supplied by active underwriters for onward transmission to syndicate auditors.
Some syndicates comprise a very large number of Names, and many of those Names would participate in several syndicates audited by different firms of panel auditors making their own reports on solvency. There was, therefore, an exchange of information and correspondence between the firms of panel auditors, as auditors endeavoured to establish the existence and availability of audit surpluses, profits and other assets to cover Names' solvency deficiencies and losses.
In order to simplify the system, Lloyd's established the Central Solvency System to operate as a 'clearing house' for the information which was then passing between auditors, agents and Lloyd's, and which would meet the requirements for Names' solvency contained in the ICA 1982 and the relevant statutory instruments. The system commenced operation with effect from the solvency test as at 31st December, 1981.
The syndicate auditor's role in relation to the solvency audit changed from the practice for prior years, with effect from the year ended 31 December 1981. As from the 31 December 1981 audit, the syndicate auditor prepared a Syndicate Solvency Report on the solvency of the syndicate, and on the allocation of the syndicate's profit or loss and surplus or deficiency for the relevant years to individual Names on the syndicate, but did not report on the overall solvency of individual Names. 
As from 31 December 1981, the Members' Solvency Reports were prepared by auditors appointed by the members' agent for the Names concerned. Under these regulations, the members' agents' auditor was entitled to rely on the Syndicate Solvency Reports furnished by the auditors for the various syndicates on which the Names underwrote. Each Member's Solvency Report produced by the members' agents' auditor reported on the solvency of the individual Name across all the syndicates on which he underwrote. The Reports were addressed to the Society of Lloyd's and to the DTI.
The Audit Instructions set out in detail the tasks required of the syndicate auditor and members' agents' auditor for the purposes of the solvency test. 

(b) Role of the Syndicate Auditor in the Calculation of Audit Reserves 
The form of Audit Certificate required for the purposes of the ICA 1974 required the syndicate auditor to report inter alia whether: 
"The liabilities attaching to [the Names'] underwriting accounts have been calculated on the basis set out in the current instructions for the guidance of auditors..."
Similarly, the Syndicate Solvency Report obliged the syndicate auditor to report, having examined the syndicate's accounting records, that in his opinion: 
"(a) the profit or loss of the closed Underwriting Account and the estimated surplus or deficiency of the open underwriting accounts have been arrived at after valuing all assets and calculating all liabilities in accordance with the [Audit Instructions] ..." 
The syndicate auditor's duty required him to satisfy himself as to the adequacy of the RITC. Lloyd's did not know in the case of any particular syndicate, precisely what work the syndicate auditor had carried out as part of his audit.
The Chairman of Lloyd's could only sign the SSOB for the purposes of the annual global test once unqualified Audit Certificates/Members' Solvency Reports for all Names had been received.
If there were any factors which affected or might affect the adequacy of the reserves, the syndicate auditor was required, under Clause 3 of the Audit Instructions, to report to the Committee and obtain their instructions before issuing the Audit Certificate/Syndicate Solvency Report. The letter from Neville Russell dated 24 February 1982 was written pursuant to Clause 3.

(c) Principal Reports Produced by Auditors and Managing Agents
The syndicate auditor (and, for the 1981 solvency audit and thereafter, the members' agents' auditor) and the managing agent were required to produce a number of reports to Lloyd's arising out of the solvency audit. The forms used for the 1980 and prior solvency audits, originally called AU forms, were changed after the Central Solvency System to reflect the different information that was required. By 1986, the forms, with the exception of the AU38 form, had been replaced by CS forms. The system and the information provided did not change significantly over the intervening years.
Amongst the forms was Form AU38 (or AU38a) - "Matters to be reported by syndicate auditor". This form was completed by the auditors in relation to each syndicate audited by them. In particular it required the auditors to report in accordance with Clause 3 of the Audit Instructions and the Solvency Letter on the following: 
(i) whether the RITC for the year prior to the year being closed at the current audit or the reserves created on any accounts in run-off, appeared to be inadequate, and, if so, by how much. The auditor was also required to set out any explanation for the apparent inadequacy given by the managing agent and the auditor's observations thereon;
(ii) which of the tests had been adopted for the audit reserves, whether the RITC (or amount placed to reserve where the account was running off) was less than the MPR levels, which accounts were running off and which had been closed by reinsurance. No figures for RITC or reserves were required.
The form AU38 was changed for the 1984 solvency audit to refer to apparent inadequacies in reserves rather than RITC in order to maintain the distinction between the RITC and the solvency test (see MSSC minutes of February 1985). In the years prior to the 1983 year-end, the Global Revenue Accounts produced by syndicate auditors were consolidated returns for all the syndicates which they were responsible for auditing. They contained details of (inter alia) the RITC premiums received and paid, if any, including reserves on accounts running-off. Individual syndicate returns were first required and obtained in respect of the 1983 year end.
[The AU38 form identified the extent of any apparent inadequacies in the particular syndicate's reserves for the year of account that had closed (or was running off) at the previous year end (i.e. for the year prior to the year of account then being closed). An apparent inadequacy with respect to the prior year's reserves had no bearing on the adequacy of the syndicate's audit reserves for the year of account closing at the date of the solvency test. The underwriting agent and active underwriter were also required to provide a certificate to the syndicate auditor and the Committee of Lloyd's certifying to the best of their knowledge and belief, the adequacy of the audit reserves being created for the current year's solvency test, including those for the year then closing (See form AU17). Those audit reserves should therefore have included an amount in respect of any apparent inadequacy identified for the prior year. Furthermore, the syndicate auditor was under a duty not to sign the Audit Certificate/Syndicate Solvency Certificate for the current year's solvency test if he was not satisfied with the calculation of the audit reserves for that test. From the introduction of the AU38(a) form as at 31 December 1982 the auditors were required to give an explanation for the inadequacy of the prior year RITC. There was a change in reporting requirements as at 31 December 1984 to report inadequacy in reserves for prior years as opposed to RITC.]
The Audit Department/MSSD conducted a review of the AU38s for each year and reported the results to the Committee of Lloyd's or, later, the MSSC. As from the review of the AU38s for the year ended 31 December 1984, where a syndicate's reserves for the year prior to the year of account being closed were found to have an apparent inadequacy greater than 15% of the reserves, and where no satisfactory explanation had been given, Lloyd's requested the managing agent to explain the reasons for the apparent inadequacy and the steps being taken to prevent a recurrence. Where the apparent inadequacy was greater than 30% of the reserve, the active underwriter and a director of the managing agent were called in for an interview with the MSSC Chairman or Deputy Chairman. Discussions in relation to apparent inadequacies are found in the following documents:
(i) minutes of special meeting of the Committee of Lloyd's on 5 December 1977;
(ii) minutes of special meeting of the Committee of Lloyd's on 8 December 1978;
(iii) minutes of special meeting of the Committee of Lloyd's on 14 December 1979;
(iv) review of audit requirements for the 1980 solvency test;
(v) minutes of special meeting of the Committee of Lloyd's on 11 December 1980;
(vi) paper for the Committee in respect of the 1981 solvency audit;
(vii) minutes of a special meeting of the Committee on 9 December 1982;
(viii) minutes of a special meeting of the Audit Committee on 26 September 1983;
(ix) minutes of special meeting of the MSSC on 17 October 1983;
(x) minutes of a meeting of the MSSC on 15 October 1984;
(xi) memorandum for MSSC meeting on 16 December 1985;
(xii) minutes of a meeting of the MSSC on 16 December 1985;
(xiii) minutes of a meeting of the SSC on 1 December 1986;
(xiv) memorandum for SSC meeting on 14 September 1987; and
(xv) minutes of SSC meeting on 17 September 1987.

Developments in the Regime for the Solvency Audit
The changes in the scales of MPRs referred to below are only those for non-marine "All Other" business, and, for the 1981 solvency test and thereafter, the non-marine "All Other" US$ business. The changes to the Audit Instructions and Solvency Letter are those that are relevant to the issues in these proceedings. 

(a) 1977 Solvency Audit
As to MPRs - non-marine "All Other" business, increases were made in the percentages for years 2 to 8, and new reserves were applied to years 9 and 10 (with an alternative outstandings test for year 10). 
As to Audit Instructions and Solvency Letter, this was the first year in respect of which syndicate results were required to be provided to Lloyd's by 30 April.

(b) 1978 Solvency Audit
No changes to MPRs - non-marine "All Other" business, were made.
There were no material changes to Audit Instructions and Solvency Letter.

(c) 1979 Solvency Audit
As to MPRs - non-marine "All Other" business, increases in the percentages were made for all years, and new reserves were introduced at the end of years 11 and 12 (with an alternative outstandings test for year 12). The Committee agreed that statistical information up to year 20 of each account should be requested, inter alia, in respect of non-marine "All Other" accounts. The Committee also agreed that certain matters should be considered during 1980, including the sub-division of the non-marine "All Other" account, the separate application of an alternative outstanding liabilities test for the third and subsequent years and the replacement of the existing system of relating reserves to premium income. 
There were no material changes to Audit Instructions and Solvency Letter.

(d) 1980 Solvency Audit
As to MPRs - non-marine "All Other" business, the MPR percentages were increased for years 2-12, and a new reserve of 3% (or outstandings) required for year 13.
There were no material changes to the Audit Instructions or Solvency Letter. The letter of 2 February 1981 enclosing the Audit Instructions and Solvency Letter drew auditors' attention to the effect on reserves of very long-tail business such as products liability and excess casualty reinsurance business.

(e) 1981 Solvency Audit
The scales of MPRs-non-marine "All Other" business were split to provide a separate, higher, scale for US$ business and a separate, lower, scale for non-US$ business. This split was a consequence of continuing efforts on the part of Lloyd's to provide a separation, for the purposes of the MPRs, of the diverse categories of business which were included within the non-marine "All Other" business category. Some of the categories within non-marine "All Other" business were shorter tail, and therefore warranted lower MPRs than other categories. Accordingly, efforts were directed, in consultation with the relevant market associations, and in particular LUNMA, towards refining the categories of business within that class with a view to refinement of the MPRs. Segregation was not, however, a straightforward matter, as revealed by the Committee minutes and other documents summarised below:
(i) in 1979 the Audit Committee requested the Audit Department to conduct a review of audit codes with a view to producing a system of common audit codes based on the length of tail. LUNMA, and other market associations, were contacted and asked to provide a list identifying every type of risk written by the non-marine market together with the relevant audit codes. But LUNMA declined to contemplate this task, stating that due to such a multiplicity of risks written by the non-marine market, it would be too great a task. The question of division was discussed by the Committee of Lloyd's on 14 December 1979;
(ii) in April 1980, the Audit Committee requested LUNMA to provide a list of those risks currently in the "All Other" scale which could be reclassified as "medium tail". By November 1980 the Audit Committee were contemplating the suggestion that there should be a division between US and non-US business, when Mr. Lawrence reported that he had asked LUNMA to reconsider their decision not to undertake a split of the non-marine "All Other" account; 
(iii) segregation was further discussed:
(a) at the meeting of the Committee of Lloyd's on 11 December 1980, when Mr. Lawrence reported that LUNMA had supported a suggestion that percentage reserves should be considered in individual currencies rather than all currencies combined; 
(b) in a paper placed before the Committee of Lloyd's in 1981;
(c) at the Audit Committee meeting held on 5 May 1981; and
(iv) at a further meeting of the Audit Committee (see the paper headed "Review of Audit Requirements"), the Audit Committee recommended that separate scales of reserves should be created for US$ and non-US$ business. This recommendation was approved by the Committee of Lloyd's on 7 December 1981, and was reflected in Mr. Randall's letter of 21 December 1981 and the Audit Instructions and Solvency Letter for that year end.
[Efforts to obtain a more refined segregation continued thereafter, and ultimately culminated in the introduction of new audit codes with effect from 1 January 1987.]
At the same time as efforts were made to obtain a more refined segregation for the purposes of the MPRs, Lloyd's also investigated and explored the possibility of developing a formula for reserving which was not based on percentages of premium income. Preliminary work carried out within Lloyd's was discussed at the Audit Committee meeting held on 5 May 1981, and referred to at the panel auditors meeting on 10 November 1981. An actuary, Mr. Sidney Benjamin, a senior partner of Bacon & Woodrow, subsequently began working on this question, and his work is referred to and discussed in various documents and minutes. Comparative tests of the "Benjamin method" against the traditional audit reserve calculations were undertaken during the mid 1980's, and the information generated was made available to the market and to registered auditors. In April 1983, a working group was formed to undertake limited testing of the Benjamin method. Their report was published in December 1983. Development of the Benjamin method was delayed after 1985 until a means could be found of obtaining gross settlement statistics, which were felt to be necessary if the system was to be effective. 
[As to other changes to Audit Instructions and Solvency Letter, clauses 1 and 2 of the Audit Instructions set out the form of Syndicate Solvency Certificate to be completed by syndicate auditors, which was required as a consequence of the introduction of the Central Solvency System. The Audit Instructions also set out the duties of the syndicate auditors with respect to the review of syndicate books and records.]
The Solvency Letter, in the notes on Clause 3, was amended to require underwriters and underwriting agents to draw to the attention of syndicate auditors any factors that affected or might affect the adequacy of the reserves as at 31 December 1981. The equivalent provision in previous Solvency Letters had required the auditors to ask this question of the underwriting agent and had drawn particular factors to the attention of the auditors. The Solvency Letter was in future to be addressed specifically to underwriting agents and active underwriters as well as to panel auditors to reflect the change in emphasis of this aspect of Clause 3. The non-exclusive list of factors in the notes to Clause 3 included "risks which included liability for latent diseases and product liability".
A letter was sent to Lloyd's by Neville Russell on 24 February 1982 pursuant to Clause 3 of the Audit Instructions in relation to reserves for asbestos-related liability. Lloyd's (by Mr. Randall) responded to panel auditors by letter dated 18 March 1982, enclosing a copy of the Murray Lawrence letter of the same date to underwriting agents and auditors (see chapter 19 below).

(f) 1982 Solvency Audit
Increases to MPRs - non-marine were made in the "All Other" US$ scale in each of years 1 to 11 and 14. In a letter dated 3 February 1983 Lloyd's advised managing agents and active underwriters that for the purpose of the statement of outstanding losses for the solvency test as at 31 December 1982, Lloyd's would require both gross and net outstanding losses for the 1980 and prior years of account to be shown.
As to amendments to Audit Instructions and Solvency Letter, clause 2 was amended to impose additional requirements on the syndicate auditor to examine and satisfy himself as to the adequacy of the accounting systems and to undertake alternative procedures where the systems were inadequate. Further the auditor had to satisfy himself that all necessary information had been supplied. Clause 6 was amended to clarify that it was the responsibility of the managing agent to establish the audit reserves and the auditor's responsibility to audit that calculation. The syndicate auditor was required to ensure that the agent had discharged his responsibility in this regard in a reasonable manner consistent with available information on outstanding losses, statistics on underwriting performance, market experience and any relevant information and explanations.

(g) 1983 Solvency Audit
The scales of MPRs - non-marine "All Other" US$ business were unchanged from 1982.
The Audit Instructions were changed to require the syndicate auditor, where he believed the syndicate's accounting systems were not adequate, to make recommendations to the managing agent as to improvements for systems and controls and to require that certain reports be made on the systems. The syndicate auditor was also required to undertake "such other procedures as he considered necessary" to enable him to complete and sign the Syndicate Solvency Report.

(h) 1984 Solvency Audit
As to MPRs - non-marine "All Other" US$ business, the scales of reserves were increased from year 5 to year 13 and new reserves were added for years 15 and 16. In addition, years 10 to 15 were made subject to an alternative outstanding liabilities test (year 16 was in any case subject to an alternative liabilities test in accordance with usual practice). 
As to Audit Instructions and Solvency Letter, consideration had been given in the discussions on the MPR scales to a higher scale than eventually agreed. The higher scale was rejected but Lloyd's took the opportunity in the Audit Instructions to re-emphasise that the syndicate auditor must have regard to the fact that the MPR scales represented the "absolute minimum requirement" for any syndicate and had been compiled on that basis. Where professional judgment and statistical evidence suggested, provision had to be made over and above the MPRs to take account of the particular circumstances of individual syndicates. This was also re-emphasised in a letter to managing agents, active underwriters and panel auditors dated 12 November 1984 advising them of the MPR scales for the 1984 solvency audit. The letter reminded the addressees that any syndicate reserving at or near minimum percentage levels would have to demonstrate to its auditors that this represented an adequate provision. 
In previous years, if a syndicate had wanted to set an RITC premium at less than the audit reserves calculated by reference to the MPRs, it was required to obtain the Committee's approval. Under Byelaw No.7 of 1984, auditors were now required to report in true and fair terms on the results of closed years. Therefore it was considered no longer appropriate for the Committee to approve the setting of RITC by a syndicate at less than MPR levels. Reflecting this change, syndicate auditors were now merely required to report to Lloyd's if the 1982 and previous years' accounts of each syndicate were closed by reinsurance at a lesser sum than the MPRs and if so to confirm that the audit reserve for the open year of account had been adjusted to reflect the difference between the RITC premium and the audit reserves calculated in accordance with the MPRs.
The Audit Instructions and Solvency Letter were accompanied by a letter from the MSSD dated 10 January 1985 alerting managing agents and registered auditors, inter alia, to:
(i) the requirement that no syndicate may have audit reserves less than those calculated in accordance with the MPRs; and
(ii) the true and fair requirement applicable to the 31 December 1985 accounts and the Council's encouragement that the accounts for 31 December 1984 should be drawn up on the same basis.

(i) 1985 Solvency Audit
As to MPRs - non-marine "All Other" US$ business, the scales remained the same, subject to the removal of the alternative outstanding liabilities test for years 10 to 15. The proposed scales of MPRs were circulated under cover of a letter dated 19 November 1985. A further letter was sent on 31 January 1986.
As to Audit Instructions and Solvency Letter, clause 6(i)(d) of the Solvency Letter, which required any syndicates reserving at or near the minimum percentage to demonstrate to its auditor that this represented an adequate provision, was removed, because all syndicates needed to demonstrate to their auditors that their reserves were adequate regardless of whether they were at or near the MPR levels. It was misleading to state that this was only necessary where syndicates reserved at or near MPRs. Clause 3 of the Solvency Letter was changed to require auditors to report inadequacies in reserves created at 31 December 1982 (the prior closed year), rather than RITC. The reason was to distinguish between the syndicate accounts (RITC) and the solvency test (closing reserves). Clause 3(iii) of the Solvency Letter (managing agents to bring to auditors' attention factors which affect or may affect the adequacy of the reserves) was amended, inter alia, so that "any factors" was in bold, the words "but in no way limited to" were added to the introduction and sub-paragraph (a) read "risks which include liability for latent diseases "and/or" products liability". 

(j) 1986 Solvency Audit
As to MPRs - non-marine "All Other" US$ business, the scales of MPRs were reduced for years 1, 2 and 16, and increased for years 11 to 15. A new reserve was added for year 17. 
As to Audit Instructions and Solvency Letter, the Audit Instructions and Solvency Letter were combined into one document. This change was of form rather than substance, as explained in a letter to managing agents, active underwriters and recognised auditors dated 19 December 1986. In particular, the Audit Instructions now identified the principal responsibilities of the managing agent, syndicate auditor, members' agents and members' agents auditors in separate parts. The provisions as to the valuation of assets and the valuation of liabilities were in two further parts. It was stressed in Clause 6.1 (valuation of liabilities) of the Audit Instructions that the Instructions were applicable solely to the annual solvency test and were not determinative of the accounting standards applicable to the annual report prepared in respect of a syndicate.

(k) 1987 Solvency Audit
As to MPRs - non-marine "All Other" US$ business, the MPRs were decreased in respect of years 3 and 17 and increased in respect of years 5 to 16. A new reserve of 5% (or outstanding liabilities) was added in respect of year 18.
New audit codes had been introduced with effect from 1 January 1987 but separate minimum reserve levels could not be established immediately for these codes until sufficient data had been collected:
non-marine long-long-tail Code A1
non-marine medium long-tail Code A2
non-marine short-long-tail Code A3
bankers' business Code BB
The introduction of the new audit codes was a further consequence of the efforts made to refine the categories within the non-marine "All Other" business class following the division in 1981 between US$ and non-US$ business. The further discussions and efforts concerning segregation are revealed in the documents identified below: 
(i) at the Audit Committee meeting on 1 March 1983, the Committee agreed that a further effort should be made to divide the non-marine "All Other" business account, and that LUNMA should be approached and requested to assist in extracting those classes of business which could form a "short all other" scale of reserves;
(ii) by the time of the Audit Committee meeting on 6 September 1983, a sub-committee had been set up to deal with the matter. By letter dated 26 October 1983, LUNMA reported that its Committee were of the view that there should be no new audit codes splitting the "All Other" category into statistical sub-divisions; a position reiterated at the meeting of the LUNMA Committee held on 13 September 1984;
(iii) at a meeting of the MSSC on 15 October 1984, it was considered that a further attempt should be made to sub-divide the "All Other" categories;
(iv) eventually, on 14 July 1986, the LUNMA Committee prepared a paper which recommended that there should be a further subdivision into bankers business, short long, medium long, and all other. They proposed that bankers' business should carry new minimum audit percentages immediately; that the other three categories would, for the time being, continue to be dealt with (for MPR purposes) as a single category. The proposal was discussed, and broadly accepted, by the MSSC on 22 October 1986; and their recommendations were put before the Committee of Lloyd's. The new audit codes (A1, A2, A3, and BB) were introduced with effect from 1 January 1987.
The new audit codes were referred to in a letter dated 4 December 1987, enclosing the Solvency Test Instructions for the year ended 31 December 1987. The letter stated: 
"Non-Marine Reserves
With effect from 1 January 1987, new audit codes for non-marine business were introduced, namely codes Al; A2; A3 and BB. Until separate minimum percentage reserves can be established for non-marine short-long-tail, medium-long-tail and bankers business categories the existing non-marine all other (long-tail) solvency category will cover all these audit codes. However, as a result, the minimum percentage reserves for this category will not provide adequate levels of reserves even as a minimum for the longer tail classes [and], managing agents and recognised auditors are reminded that a thorough review is essential of outstanding claims and, in respect of liabilities unnoted and incurred but not reported (IBNR's)."
There were no material changes to Audit Instructions - now called Solvency Test Instructions.

H. REGIME FOR STATUTORY STATEMENT OF BUSINESS AND GLOBALS

Introduction
The process of collating material for the SSOB, Aggregate Results and Global Accounts was, in the relevant contemporaneous documents, called "the Global Process" and the end result "the Globals", notwithstanding the distinctions between the various documents.
To summarise the production of the SSOB and Globals: 

Prior to the year ended 31 December 1982
(i) Lloyd's prepared the SSOB from consolidated returns made by syndicate auditors called "Global Statements". In addition syndicate auditors produced more detailed "Global Revenue Accounts" which were provided to the DTI although they were not strictly required by statute.
(ii) The Global Revenue Accounts were used by Lloyd's to prepare Aggregate Results, which used slightly different business categories (similar to Lloyd's traditional business categories) to those used for the SSOB. Aggregate Results were released by Lloyd's at its annual press conference along with statements made by the Chairman of Lloyd's and Chairmen of the various Market Associations. A summary of Aggregate Results and statements of the Chairmen were circulated to underwriting agents by the Publicity and Information Department. A summary of the Aggregate Results and statements of the Chairmen were also published in the Lloyd's Log. The Aggregate Results were also included in the accounts of the Corporation of Lloyd's for the 1978 year end (which contained the Aggregate Results for the closure of the 1975 year of account as at 1977) until the 1981 year end (which contained the Aggregate Results for the closure of the 1978 year of account as at 1980). 

For the year ended 31 December 1982 and subsequent years
(i) Following the enactment of the ICA 1982 the form of SSOB was changed, from the year ended 31 December 1982, to replicate substantially the information previously provided by the Global Revenue Accounts. In particular, the number of business categories was increased. The SSOB also contained a number of additional returns to the DTI.
(ii) With effect from the year end as at 31 December 1982, the Globals were published in the form of a brochure containing, inter alia, the Global Accounts and statements by the Chairman of Lloyd's and Market Association Chairmen. The Globals were distributed at a press conference. The Global Accounts provided in the Globals were expanded (by comparison to the information previously made available to the press and public) to cover the same business categories as in the new form of SSOB.
(iii) The forms, on which the information for the SSOB and Global Accounts was collated, were changed to forms with a GL prefix. Initially syndicate auditors provided consolidated returns aggregating the results of all syndicates which they audited (as had been the case prior to 1982). Lloyd's then aggregated these returns manually to produce the SSOB and Global Accounts.
(iv) By the time of the SSOB and Global Accounts as at 1983 syndicate auditors were required to furnish returns for each individual syndicate but the SSOB and Global Accounts continued to be calculated from aggregated returns by syndicate auditors (i.e. returns that did not distinguish between individual syndicates). By the time of the SSOB and Global Accounts as at 1986, individual syndicate returns were used to produce the SSOB and Global Accounts. The process became computerised so that individual syndicate returns were aggregated by Lloyd's by computer. 
The administrative departments responsible for producing the SSOB, Aggregate Results and Global Accounts over the Relevant Period were as follows: 

As at 1981 and prior years 	the Audit Department. 	
As at 1982 	the Members' Solvency and Security Department. 	
As at 1983
and intervening years 	the Accounting and Auditing Review Department. 	
As at 1987 	the Accounting and Auditing Standards Department 	

DEVELOPMENT OF THE STATUTORY REGIME

(a) SSOB as at 31 December 1981 and Prior Years
Lloyd's has been required to lodge statements on Lloyd's business with the Board of Trade (or the DTI) since 1948. For the year ended 31 December 1981 and prior years, this requirement was set out in Section 74 of the ICA 1974. The Assurance Companies Rules 1950 (SI 1950/533) set out the prescribed form of SSOB at Rule 19 (then called the "Annual Statement"). The SSOB were required to be signed by the Chairman of Lloyd's, the Chairman of the Audit Sub-Committee and the Clerk to the Audit Sub-Committee.
There were four categories of business in respect of which statements were required: 
Form A: returns relating to life assurance business; 
Form B: returns relating to motor vehicle insurance business within Great Britain and Northern Ireland (other than reinsurance business); 
Form C: returns relating to marine, aviation and transit insurance business; and
Form D: returns relating to all other assurance business other than long term business (i.e. other than life assurance business).
Each form certified that all the liabilities attaching to such business had been calculated by an auditor (or an actuary in respect of life assurance business) and that an Audit Certificate had been furnished by each underwriter to the Board of Trade and to the Committee of Lloyd's. Each form also set out the income and expenditure for each open year and the closed year of account as at the year end to which the Annual Statement related.

(b) SSOB as at 31 December 1982 and Subsequent Years
Following the enactment of the ICA 1982, a new form of SSOB was required to be furnished to the Secretary of State for Trade and Industry. The SSOB was prescribed in Regulation 5 and Schedule 3 of the Insurance (Lloyd's) Regulations 1983, and applied to the audit as at 31 December 1982.
The SSOB was in the form of a general certificate to be furnished by Lloyd's and a number of supporting Forms. The general certificate stated that the SSOB had been completed in accordance with the ICA 1982 and that an Audit Certificate had been provided in respect of every underwriting member. The general certificate was signed by the Chairman, Deputy Chairman and Secretary-General of Lloyd's. The supporting Forms to be completed pursuant to paragraph 5 of the Regulations and Schedule 3 covered revenue accounts, premium analysis returns, solvency margin calculations and a consolidated statement of assets and liabilities of Names.
Form 1 required "Three Year Revenue Accounts" for each of the open years and the closed year as at the year end to which the SSOB related. Regulation 5(2) and (3) specified that Form 1 returns were required for the following:
(i) for each of the following accounting classes of general business: 
(A) accident and health; 
(B) motor vehicle, damage and liability; 
(C) aircraft damage and liability; 
(D) ships, damage and liability; 
(E) goods in transit; 
(F) property damage; 
(G) general liability; and
(H) pecuniary loss; 
(ii) for long term business; and
(iii) for all insurance business. 
Form 1 compared income and expenditure as in the earlier SSOB but in greater detail. One principal difference was that the reinsurance premiums received and paid, if any, were separately stated from the net premiums and net claims. These values included amounts placed to reserve in respect of estimated liabilities from previous accounts (i.e. reserves established on years of account in run-off).
The Production of the SSOB, Aggregate Results and the Global Accounts, the Development of Globals and the Process for the approval of SSOB and Globals are described in Appendix 4.

12. THE RULES AND PROCEDURES GOVERNING THE ADMISSION TO UNDERWRITING MEMBERSHIP OF LLOYD'S AND RELATED MATTERS
The following account of the Rules and Procedures Governing the Admission to Underwriting Membership of Lloyd's and Related Matters is drawn from a statement of agreed facts. Where I have added to the statement this is shown in square brackets.
A. THE REGULATORY FRAMEWORK APPLICABLE TO ADMISSION TO UNDERWRITING MEMBERSHIP OF LLOYD'S AND RELATED MATTERS

Byelaw No. 87 (18 November 1970)
Under this byelaw, insurance business could be effected with Names through an underwriting agent only if that agent was at the time listed in the Register of Approved Lloyd's Underwriting Agents to be kept by the Committee of Lloyd's.

Manual for Underwriting Agents (1971 Version)
The procedure applicable to admission to underwriting membership of Lloyd's was set out in the Manual for Underwriting Agents which was first published in 1971. The Manual also set out the duties owed by underwriting agents (both members' and managing agents) to prospective and existing Names. These duties included (at Section A, paragraph 3.1(ii) of the Manual):
(i) advising and discussing with prospective Names the prospects and past results of the various syndicates on which the agent could place Names;
(ii) co-operating with the prospective Name's sponsor in submitting applications for membership;
(iii) agreeing with the Name the allocation of the Name's premium limits as between syndicates;
(iv) keeping Names informed of the progress of their underwriting; 
(v) arranging to provide annual audited accounts to Names; and
(vi) passing on to the Name any relevant information or instructions contained in correspondence from the Committee of Lloyd's.
The Manual also set out the obligations on a managing agent to "keep the [members'] Agent fully advised of the progress of the underwriting account ... by periodical advice at least on a quarterly basis ... [and] by making available any such further information as may be requested ..." (at Section A, paragraph 9.2(iv) of the Manual).
The Manual was subsequently updated by means of replacement pages which were regularly issued in the form of sequentially numbered "Amendment Lists".
A brochure entitled "Notes for Applicants for Underwriting Membership" was prepared by the Membership Department of Lloyd's in 1971 and appended to the Manual. Various amendments were subsequently made to this brochure between 1971 and 1979 prior to its replacement by a separate brochure, the "Brochure for Applicants for Underwriting Membership" in 1979.
On 22 December 1977, the Committee of Lloyd's issued a letter to all underwriting agents setting out detailed requirements as to information to be provided by agents to US citizens and residents applying for membership of Lloyd's. The letter also gave instructions as to documentation to be used by agents in connection with such applications, including a separate brochure for US applicants (appended at Part A to Exhibit D to the letter) and a "verification form" which was to be signed by US applicants at or immediately following his or her Rota Committee interview as part of the procedure for admission to underwriting membership of Lloyd's.
On 23 January 1979, the Committee of Lloyd's issued a further letter to all underwriting agents recommending that the same information that was to be disclosed to US applicants should be disclosed to all new Names who became Names through their agency. The letter also recommended that disclosure should be made to an existing Name at the time of his/her increasing his/her line on a syndicate, joining a new syndicate or employing a new agent. Finally, the letter advised that if a brochure was prepared by an agent for the purpose of disclosing information to new Names, the agent should notify its existing Names of the existence and availability of that brochure.
Again in January 1979, the brochure for non-US applicants entitled "Notes for Applicants for Underwriting Membership" was replaced by the "Brochure for Applicants for Underwriting Membership". 
On 5 March 1980, a letter was sent by the Manager of the Membership Department to agents indicating that all prospective Names or existing Names joining an agency or syndicate, irrespective of nationality, should be provided with the same information which was previously required to be disclosed specifically to US Names as set out at Section A, paragraph 16.5 of the then current version of the Manual. The letter also asked agents "to draw to the attention of new Names factors which may have affected past results or may affect future results, and to keep all Names informed of factors which might materially affect the results of the Syndicate".

Manual for Underwriting Agents (January 1980 Version and Amendments)
The Manual was reprinted in full in January 1980. Replacement pages continued to be produced throughout the Relevant Period up to and including 1988.
The amendments to the Manual made by Amendment List No. 49 on 2 May 1980 made reference to the following:
(i) the requirement (which had previously been notified to agents in the 5 March 1980 letter) that "Agents should keep all Names informed of facts that might materially affect Syndicate results" (Section A, paragraph 15.1, headed "Disclosure to Existing Names", of the amended Manual); 
(ii) the requirement (which had also previously been notified to agents in the 5 March 1980 letter) that agents should provide prospective Names with "comments on factors which have materially affected past results or might materially affect future results" (Section A, paragraph 17.1(iii)(c) of the amended Manual); 
(iii) the requirement that agents should explain to prospective Names the concept of unlimited liability (Section A, paragraph 17.1(i)(f) of the amended Manual);
(iv) the requirement that agents should provide to prospective Names the "results of operations for each Syndicate for at least 7 years which have been certified by Panel Auditors and most recent percentage settlement figures in respect of open underwriting years, together with an indication as to whether they are likely to show a profit or loss" (Section A, paragraph 17.1(iii)(c) of the amended Manual).
The requirements set out in Amendment List No. 49 that agents should explain the concept of unlimited liability to prospective Names and should show them the results of at least the last seven closed underwriting years (where applicable) for each proposed syndicate, had both previously been set out in the relevant Rota briefs and verification forms for both 1979 and 1980 joiners.

The Report of the Fisher Working Party into Self-Regulation at Lloyd's - May 1980 
The Fisher Report made a large number of recommendations, including that under the anticipated new Lloyd's Act (which subsequently received Royal Assent on 23 July 1982), the Council and Committee of Lloyd's should be given extensive powers:
(i) "to regulate the admission and registration of Members, Agents and Brokers" (paragraph 4 of the Fisher Report); and 
(ii) in relation to "the provision of adequate information by Agents to prospective and established Members [and] the proper treatment of Members by Agents under the terms of a generally standard form of Agency Agreement" (paragraph 8 of the Fisher Report).
The Fisher Report gave rise to the establishment of a number of "Task Groups". These included the following:
(i) Fisher Task Group 2 which considered byelaws and regulations generally;
(ii) Fisher Task Group 3 (Rules for Members);
(iii) Fisher Task Group 4 (Information to Names); and
(iv) Fisher Task Group 5 (Agency Agreements).
The work of these Task Groups in turn led to the passing of a number of byelaws, as set out below.
1983 Annual Reports of Syndicates Byelaw (No. 2 of 1984)
This byelaw imposed an obligation (enforceable by disciplinary measures) on managing agents to prepare audited syndicate accounts for the year ended 31 December 1983. The byelaw specified the contents of the accounts and the timing for their completion and circulation to Names (direct or through members' agents) and to Lloyd's. The timing was as follows:

15 June 	Despatch of accounts by managing agents to members' agents or directly to Names and to Lloyd's 	
15 July 	Despatch of accounts by members' agents to Names 	

Disclosure of Interests Byelaw (No. 3 of 1984)
This byelaw required that members' and managing agents must disclose to Names, through annual statements and syndicate annual reports respectively, all transactions and arrangements concerning the Name in which the agent had a material interest.

Underwriting Agents Byelaw (No. 4 of 1984)
Through this byelaw, the Committee of Lloyd's established a register of all underwriting agents, divided into members' agents and managing agents (paragraph 3 of the byelaw). An agent was not permitted to operate in the Lloyd's market unless it was registered under this byelaw (or was already registered under Byelaw No. 87 in which case the need to register under the 1984 byelaw was postponed until 22 July 1987) (paragraph 4 of the byelaw). The factors which the Committee would take into account in deciding whether the agency was "fit and proper" to be registered included the suitability of its directors or partners and its staff; the suitability of the active underwriter(s) (in the case of a managing agent); and its ability to supervise and service all of its activities and responsibilities (paragraph 8 of the byelaw).

Syndicate Accounting Byelaw (No. 7 of 1984)
This byelaw set out the requirements for the preparation and audit of syndicate accounts for the year ended 31 December 1984 and onwards and for the preparation and audit of individual Names' personal accounts. It contained full details as to the contents, timing, publication and circulation of syndicate accounts, as well as provisions relating to the contents of managing agents' and underwriters' reports. The timetable for the circulation of syndicate accounts and accompanying documents was the same as that set out in the 1983 Annual Reports of Syndicates Byelaw.

Membership Byelaw (No. 9 of 1984)
This byelaw was supported by detailed secondary rules set out in the Manual for Members. The Manual for Members, which was prepared by the Membership Department, consolidated all of the existing rules relating to admission and was distributed to members' agents.
As well as dealing with the requirements for admission (paragraphs 4-8 of the byelaw), the byelaw gave the Council and Committee of Lloyd's the power to require Names to provide proof of means and required Names to notify the Committee in writing if their level of means fell below the qualifying level (paragraphs 3(b)(ii) and 14(c)-(d) of the byelaw).

Agency Agreements Byelaw (No. 1 of 1985)
As a result of this byelaw, insurance business could not be underwritten at Lloyd's after 31 December 1986 except in pursuance of a Standard Agency Agreement (set out in Schedule 1 to the byelaw) or a Standard Sub-Agency Agreement (set out in Schedule 2 to the byelaw).

1986 Brochures
In February 1986, both the US and non-US versions of the Brochure for Applicants for Underwriting Membership were replaced by the "Applicants' Guide for Underwriting Membership" which was introduced in respect of all applicants regardless of nationality. This in turn was replaced in December 1986 by a brochure entitled "Membership: The Issues", again in respect of all applicants.

The Report of the Committee of Inquiry Chaired by Sir Patrick Neill into Regulatory Arrangements at Lloyd's - January 1987
Among the conclusions of the Neill Report was the finding that "the formal [admission] process does contain many of the safeguards associated with modern investor protection legislation, for example, specific rules about the financial circumstances of the prospective Name and the information he/she is to be given, and a lengthy introductory procedure culminating in a Rota interview" (paragraph 4.8 of the Neill Report).
The Neill Report also noted that the members' agent "has a critical role to play in explaining in detail the financial requirements for Names laid down by Lloyd's, the financial consequences of membership, the services which the agent himself provides and the syndicates he can make available. A competent agent will be at pains to advise the applicant whether membership of Lloyd's is appropriate to his circumstances. It is then for the agent to guide the Name through the admission process" (paragraph 4.5 of the Neill Report).
It further noted that members' agents had to understand that they were "responsible for giving Names comprehensive and objective advice on the consequences of membership in the light of a thorough understanding of the Names' individual circumstances" (paragraph 4.33 of the Neill Report).
The Neill Report in turn gave rise to further byelaws and codes of practice, as summarised below.

Syndicate Accounting Byelaw (No. 11 of 1987)
This byelaw set out revised requirements relating to the preparation and audit of syndicate accounts and to the preparation and audit of individual Names' personal accounts. Like the Syndicate Accounting Byelaw (No. 7 of 1984), it contained full details as to the contents, timing, publication and circulation of syndicate accounts, as well as provisions relating to the contents of managing agents' and underwriters' reports. As stated in a letter dated 11 December 1987 from the Council of Lloyd's to underwriting agents, market associations and recognised auditors, the revised timetable for the circulation of syndicate accounts and accompanying documents was as follows:

31 May 	Despatch of annual reports and personal accounts by managing agents to members' agents and of annual reports to Lloyd's 	
30 June 	Despatch by members' agents to Names or by managing agents directly to Names 	

The revised timetable applied in respect of syndicate accounts and accompanying documentation for the year ended 31 December 1988 and onwards.

Members' Agents (Information) Byelaw (No. 7 of 1988)
Under this byelaw, which came into force on 1 January 1989, all members' agents had to compile annually a members' agent's information report containing "such information as would materially assist a reasonable applicant to make an informed assessment of the members' agent (and its business)" (paragraph 2 of the byelaw). The MAIR had to include, among other matters (listed in Schedule 2 of the byelaw):
(i) a statement as to whether the agent was independent or was associated with a broker or managing agent;
(ii) the number of Names which the agent had acted for and the total number of syndicates to which Names were or had been allocated by the agent in each of the last seven years of account (going back no further than the 1984 year of account);
(iii) for each such syndicate, numbers of Names and the aggregate capacity of those Names for each of the last seven years of account (going back no further than the 1984 year of account);
(iv) for the year of account commencing on the compilation date (i.e. 1 January of the calendar year in which the MAIR is compiled), a list of the directors or partners in the members' agent who were Names together with a list of the syndicates on which they underwrote business through that members' agent and their aggregate participation on each such syndicate;
(v) a statement of the average performance achieved by the members' agent (using the formula set out in Schedule 2, paragraph 5 of the byelaw) in each of the last seven years of account (going back no further than the 1985 year of account); and
(vi) a statement of policy concerning the special reserve fund and personal reserve arrangements; personal stop loss policies; the offering of capacity on syndicates managed by a managing agent associated with the members' agent as compared with other syndicates, and whether the same policy was applied to Names who were directors, partners or employees of the members' agent; and the payment of introductory commissions.
Members' agents were also required to compile annually a table of syndicate relationships (i.e. numbers of Names and the aggregate capacity of those Names for the past seven years of account, going back no further than the 1984 year of account) (paragraph 3 of the byelaw).
A members' agent could only issue a brochure if the brochure either (i) attached the current MAIR and any supplemental report prepared by the agent; or (ii) was a "qualifying brochure" (i.e. contained the information found in the MAIR and any supplemental report) (paragraph 4 of the byelaw).
Paragraph 5 of the byelaw provided that the Council of Lloyd's would set up and maintain a file of MAIRs and tables of syndicate relationships, containing a separate section in respect of each members' agent.
No members' agent could agree to act for an applicant without first giving that applicant either (i) a copy of the current MAIR; or (ii) a qualifying brochure; and in either case a copy of any supplemental report (paragraph 6 of the byelaw).

Agency Agreements Byelaw (No. 8 of 1988)
This byelaw provided that, in respect of the 1990 and subsequent years of account, no members' agent could act as members' agent of a Name, and no Name could appoint a members' agent or agree that the members' agent would continue to act in that capacity, otherwise than in pursuance of a written agreement in the form and terms of the standard members' agent's agreement set out in Schedule 1 of the byelaw (paragraph 2 of the byelaw).
Clause 4(a) of the standard members' agent's agreement required that the members' agent should "advise the Name as to the syndicates in which he should participate and as to the amounts of his overall premium limit which should from time to time be allocated to each such syndicate".
Clause 6.2(m) of the standard members' agent's agreement required that the members' agent should "disclose to the Name in good time any information in its possession relating to any of the Contracted Syndicates, or to any syndicate which the Agent has advised the Name to join or which the Name and the Agent have agreed that the Name should join, which could reasonably be expected to influence the Name in deciding whether to become or remain a member of, or to increase or reduce his participation in, any such syndicate, and use its reasonable endeavours to obtain any such information".
Similarly, in respect of the 1990 and subsequent years of account, no managing agent could, and no Name could authorise or continue to authorise a managing agent to, underwrite insurance business on behalf of a Name or provide any other services as a managing agent to a Name, otherwise than in pursuance of an agreement in the terms of a standard managing agent's agreement set out in Schedule 3 of the byelaw and, except where the managing agent is acting as the Name's members' agent, the standard agent's agreement set out in Schedule 2 of the byelaw (paragraph 3 of the byelaw).
Neither agents nor Names could vary the terms of any of these standard agreements without the written consent of the Council of Lloyd's (subject to limited exceptions) (paragraph 5 of the byelaw).

Code of Practice: "Know Your Principal" Guidelines for Members' Agents at Lloyd's (7 September 1988)
This code of practice stated that members' agents should promote and maintain, on a continuing basis, a flow of information from their principals (i.e. their Names) regarding the latter's personal and financial circumstances (paragraph A of the code of practice).
Members' agents had to satisfy themselves that (as set out in paragraph B of the code of practice):
(i) membership of Lloyd's and the type of business to be underwritten were appropriate in the principal's particular circumstances;
(ii) the principal understood the nature of the risks of membership;
(iii) the principal understood the concept of unlimited liability and how this might affect his/her personal commitments and/or financial obligations and also understood the limited role of any stop-loss policy taken out by him/her;
(iv) the principal was aware that control of his/her underwriting affairs would be delegated to his/her underwriting agents;
(v) the principal understood that he/she or his/her estate would remain liable until all the syndicates on which he/she participated had been closed by reinsurance to close; and
(vi) the principal could realise sufficient resources in the event of a sizeable loss and could maintain sufficient assets over and above those required to be maintained as a condition of membership to continue to meet his/her living expenses.
Members' agents had to seek confirmation from each principal that the implications of membership were compatible with the principal's financial objectives (paragraph B(vii) of the code of practice).
Members' agents also had to keep up to date records of each principal. These records had to demonstrate the suitability of the advice given by the members' agent in connection with membership (paragraph C of the code of practice).

B. 1978 ADMISSION PROCEDURE FOR PROSPECTIVE NAME SEEKING TO COMMENCE UNDERWRITING ON 1 JANUARY 1979 (1979 JOINER)

Categories of Membership
The requirements for admission differed in a number of respects, as detailed below, depending on the classification of the particular applicant. The principal categories of Name at Lloyd's were as follows:
(i) Lloyd's vocational Names (known as "Lloyd's Names" and, later in the Relevant Period, as "Working Names"), who had to be resident in the UK; have 5 consecutive years' qualifying service, i.e. full time service employment with a Lloyd's underwriting agent or a Lloyd's broker immediately prior to their election; and whose application had to be supported in writing by the chairman, managing director or senior partner of their employer (unless they had been an annual subscriber to Lloyd's or a substitute of another broker for five years immediately prior to their election and had a salary of not less than £10,000). (N.B. The "five year" qualifying period was sometimes reduced to two years for an active underwriter of a syndicate.) A vocational Name could be elected on reduced or nominal (i.e. zero) means. In either case, he/she had to provide a vocational undertaking to continue working in the Lloyd's market. Alternatively, a person working in the market could choose to be elected in accordance with the normal means requirement, in which case no vocational undertaking would be required.
(ii) "Connected or Associated Names", who did not have to be resident in the UK but had to have 5 years' qualifying service with one or more organisations connected with the Lloyd's market immediately prior to their election; be employed in an organisation connected with the Lloyd's market; and whose application had to be supported in writing by the chairman, managing director or senior partner of their employer, who had to verify that the candidate's work was substantially connected with the Lloyd's market. A Connected or Associated Name candidate could be elected on reduced (but not nominal) means. Unless he/she was elected in accordance with the normal means requirement, he/she would have to provide a Connected or Associated Names undertaking to continue working in an organisation connected with the Lloyd's market.
(iii) "Non-Lloyd's Names" (sometimes known as "External Names"), i.e. ones which did not fall into any other category.

Application Process
An application to become a Name and to commence underwriting on 1 January 1979 would be made during the course of 1978. Such an application could only be made through a registered members' agent, who would provide the prospective member with the necessary forms and would guide him/her through the application procedure. The members' agent's responsibilities would also include:
(i) explaining the structure of Lloyd's and the implications of membership; 
(ii) advising prospective Names on their suitability for membership and the requirements and regulations applicable to becoming a member; 
(iii) advising and guiding prospective Names through the admission procedure; 
(iv) advising prospective (and existing) Names on syndicate selection; 
(v) introducing them to the underwriters on their proposed syndicates (as recommended by the Committee of Lloyd's); 
(vi) acting as an intermediary between the Name and the managing agent; 
(vii) dealing with any changes in a Name's overall premium limit; 
(viii) dealing with the administration of the investment of a Name's personal and special reserve funds; 
(ix) accounting to Names for the results of their underwriting, including payment of profit and collection of losses or interim cash calls; and 
(x) keeping Names informed at all times of material factors which may affect their underwriting. 
The main duties of a members' agent were summarised in passages set out in chapter 10 above by:
(i) Gatehouse J in Brown v KMR Services [1994] 4 All ER 385 at 390; 
(ii) Hobhouse LJ in Brown v KMR Services [1995] 4 All ER 598 at 633 to 634; and
(iii) Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2AC 145 at 170.
Having decided to apply for admission to underwriting membership, the prospective Name also had to obtain sponsorship by an existing Name, who would send a sponsor's letter to the Membership Department of Lloyd's. In addition, in the case of US applicants, a further sponsor form, known as a "US Sponsor Declaration", was required to confirm that the prospective Name had sufficient financial and business experience to be able to evaluate the risks of membership/was able to bear the economic risks of membership. 
The closing date for receipt of the sponsor's letter was, in the case of prospective Lloyd's Names and prospective Connected and Associated Names, the end of May 1978, and, in the case of prospective non-Lloyd's Name applicants, the end of June 1978.
On receipt of a sponsor's letter (and, in the case of US applicants, a US Sponsor Declaration, a US Names Questionnaire and, if appropriate, an Adviser Questionnaire), the Membership Department would provide personal details of the prospective Name to the Committee of Lloyd's.

Eligibility
In order to be eligible to commence underwriting on 1 January 1979, a prospective Name had to be at least 21 years old and be of suitable character and financial standing.
Relevant considerations as to suitability of character included any involvement in litigious or criminal proceedings, any bankruptcy or insolvency, any conflicts of interests or any commitments or interests likely to prejudice the applicant's ability to meet his/her underwriting liabilities at Lloyd's.
The checks on age and financial standing were carried out by the Membership Department, by reference to the information submitted by applicants in the sponsor's letter. The Membership Department also co-ordinated the checks on character, which were carried out in two ways. Firstly, they circulated the information contained in the sponsor's letter to various departments within Lloyd's such as the Advisory Department and to overseas representatives where applicable. Secondly, a list of prospective applicants was posted on the board in the Underwriting Room. Any objections to the eligibility of a particular applicant and the reasons for these would be reported to the Membership Department which would then either reject the application, if it had not progressed past the Rota Committee interview stage or, if it had, notify the Committee of Lloyd's.
If, following these checks, the application was allowed to proceed, a folder, containing all the necessary forms to be completed by the applicant (except for the deeds), would be sent by the Membership Department to the prospective Name's nominated members' agent. Special folders were issued to US applicants.

Forms and Deeds
Certain of these forms had to be completed immediately. The members' agent, having assisted the prospective Name in completing these initial forms, would then send these to the Membership Department. The deadline for receipt of these forms was the end of July 1978 for prospective Lloyd's Names and prospective Connected and Associated Names and the end of August 1978 for prospective non-Lloyd's Names. The forms included a Nomination Form, a Statement of Means form and the General Undertaking. 
Once any queries relating to these forms and any supporting documentation had been resolved, the applicant's name and Nomination form were posted on a board in the Underwriting Room. 
If no objection was made to the Membership Department within one week, the Membership Department would prepare a request for the Lloyd's deposit to be provided, together with the relevant deeds, and would forward them to the members' agent for signing by the prospective Name. The request and deeds would be sent out by the end of November 1978. 

Means Requirements
The means requirements which an applicant was required to meet differed depending upon the nationality and place of residence and domicile of the particular applicant. In order to determine financial standing, a UK citizen applying in 1978 to join Lloyd's as a non-Lloyd's Name (i.e. a 1979 joiner) who was both a UK resident and domiciled in the UK would need to show a minimum level of means of £37,500 (permitting a maximum underwriting premium limit of £75,000 and requiring a minimum deposit of £20,000). A US national in 1978, wherever resident and domiciled, would need to show a minimum level of means of £100,000, permitting a maximum underwriting premium limit of £150,000 and requiring a minimum deposit of £35,000. Satisfaction of the means requirement had to be shown in the form of a Statement of Means signed by an independent professional.

Information Available to Applicants
The members' agent was required to provide certain information to the prospective Name, including, among other matters, figures for at least seven closed years of account for the syndicates which the Name was proposing to join, together with a copy of the Underwriting Agency Agreement and details of how expenses and commission were calculated and charged. In the case of US applicants, the members' agent also had to provide percentage settlement figures in respect of open underwriting years of account. This additional requirement was extended to all prospective Names from 1979, i.e. the time of 1980 joiners. At the Rota Committee interview, the Rota Committee chairman would check that the prospective Name had indeed seen this information.

Rota Committee Interview
At the same time as sending out the request for the Lloyd's deposit, and the deeds for signature, the Membership Department would arrange for the applicant to attend a Rota Committee interview, to be held by the end of November 1978. The Manual stated that it was the Committee of Lloyd's wish that the applicant should have met the active underwriters on his/her proposed syndicates prior to attending this interview.
The interview would be held at Lloyd's offices in London. It would generally last between ten and fifteen minutes and would be led by a Rota Committee chairman who would be recruited by the Membership Department from among members and former members of the Committee of Lloyd's. In addition to the Rota chairman, the others present would be the applicant/group of applicants, a director of the members' agency, an interpreter if appropriate, a representative from the Membership Department and possibly a "trainee" Rota Committee chairman and "trainee" Membership Department representative.
Given the number of applicants, interviews would sometimes be conducted with groups of applicants rather than on an individual basis. However, this would only be done for UK applicants (i.e. not for overseas applicants) and only with their consent. The group would also only consist of applicants all put forward by the same members' agency.
The interview was conducted by the Rota chairman using a form known as a "Rota brief". The brief was designed to enable the Rota chairman to fulfil the purpose of the Rota Committee interview, which was to confirm that the specific matters set out in the Rota brief had been drawn to the attention of the applicant by his/her members' agent and had been understood by the applicant. The Membership Department representative would be responsible for ensuring that the chairman had covered all the points in the brief. That representative would also have a complete file on the applicant (up to date as at that point) to help brief the chairman. 
The Membership Department would also, prior to the interview, prepare a draft Rota report. The Membership Department would include any conditions yet to be satisfied prior to election, e.g. that the deposit still had to be provided. The chairman would then sign the report which would be kept by the Membership Department with the other forms. 
The Rota report, which now included a note of the date and time of the interview and the name of the Rota Committee chairman, was then submitted to the Committee of Lloyd's.

Verification Form
At or immediately after (i.e. on the same day as) the Rota Committee interview, UK and US applicants were required to sign and return to the Membership Department a "verification form" confirming that the specific matters included in the form had been explained to him/her by his/her members' agent and that he/she understood those matters. Both the US and non-US verification forms also required the applicant to confirm that he/she had been shown the results of at least the last seven closed underwriting years (where applicable) in respect of each syndicate which he/she was proposing to join.

Entrance Fees
Entrance fees also had to be paid by the end of November 1978. These were:
Lloyd's Names: £500
Spouses (wishing to continue after the death of a member): £750
Connected or Associated Names: £1,000
UK residents with means of £50,000-£100,000: £1,500
UK residents with means of more than £100,000 and foreign nationals: £1,900

Election
Following receipt of all the remaining forms, the Membership Department would then include the applicant's name on a ballot list which it submitted to the Committee of Lloyd's seeking formal approval for the applications to proceed to final election by the Committee of Lloyd's. 
The deadline for such election was the end of December 1978, in order to allow the newly elected Name to commence underwriting on 1 January 1979. 
The applicant could withdraw his/her application at any time during the year in which the application was made. This would be done by giving notice to his/her members' agent who would then give written notice to the Membership Department, to include if possible reasons given by the applicant for withdrawal.
Immediately following election, the Membership Department sent out a membership certificate and membership card to the new Name.

C. SUMMARY OF CHANGES TO THE ADMISSION PROCEDURE AFTER 1978 UP TO AND INCLUDING 1988 (I.E. FOR 1980 JOINERS TO 1989 JOINERS)
Membership requirements and procedures were reviewed annually as a matter of course by the Membership Department. Changes might also arise out of queries and recommendations made to the Membership Department by existing Names or underwriting agents. Proposal papers were from time to time submitted to the Membership Committee which, having debated them, would make its own recommendations to the Committee of Lloyd's.

Means Requirements
In 1979 (i.e. in respect of 1980 joiners), the minimum means requirement for a UK citizen applying to join Lloyd's as a non-Lloyd's Name and who was also both a UK resident and domiciled in the UK was increased from £37,500 to £50,000. In 1983 (i.e. in respect of 1984 joiners), this requirement was increased again to £100,000. It remained at this level for the remainder of the Relevant Period.
The list of qualifying assets which could be used by an applicant to show that he/she satisfied the minimum means test requirements referred to above was amended in 1982 (i.e. in respect of 1983 and subsequent joiners). Prior to this time (i.e. for 1979 to 1982 joiners), it was necessary for an applicant to show that at least 60% of the assets being used to satisfy the means test were in a particular form. These included "Bank Guarantees or Letters of Credit on any of an applicant's assets other than their own home". There was also a separate requirement prior to 1982 that the value of an applicant's own home (which was to be calculated at certified market value less any outstanding mortgage or loan and less £25,000 - increased to £50,000 in respect of 1981 and 1982 joiners) could not exceed 40% of the assets being used for the means test. These requirements changed in 1982, from which time (and throughout the remainder of the Relevant Period) the applicant's own home was no longer excluded from the list of assets upon which a bank guarantee or letter of credit was acceptable to meet the 60% requirement referred to above. As a result of this, the use of an applicant's principal residence towards the 40% means test requirement referred to above was no longer permitted.
[In his witness statement Mr. Pollard explained that the Means/Deposits Working Party made various recommendations on means requirements and deposits (principally that the minimum means should be increased from £50,000 to £100,000) which were introduced in respect of 1984 and subsequent joiners. In respect of use of the applicant's home as part of the assets used to satisfy the means test, Mr. Pollard explained that in 1982 Lloyd's decided that applicants should no longer be allowed to use their home directly to satisfy the means requirement. Instead, an applicant could offer the home, if he/she wished to do so, as collateral against a bank guarantee.]

Application Process
An internal review of the admission procedure was conducted by the Membership Committee in 1984. This review resulted in a number of administrative changes to the procedure.

Forms and Deeds
In 1986 (i.e. for 1987 joiners onwards), the Standard Agency Agreement was introduced. This standardised the agreement which the Name signed with his/her members' agent in respect of all the syndicates on which he/she was writing business.
Also in 1986 (i.e. for 1987 joiners onwards), a new form of General Undertaking was introduced under which a prospective Name agreed to comply with the provisions of the Lloyd's Acts, subordinate legislation and other requirements of the Council of Lloyd's and to have any dispute relating to his/her membership of or underwriting at Lloyd's resolved in the English courts and subject to English law. 

Rota Committee Interview
From 1987 (i.e. from the time of 1988 joiners onwards), the Rota brief was amended to provide that members' agents should be asked to leave the interview room part way through the Rota Committee interview, after which applicants should be asked about the information they had received from their members' agents and be reminded of the very important financial step they were intending to take and of their right to withdraw their application at any time during that year. The requirement that members' agents be asked to leave the room was made in response to a recommendation in the Neill Report arising out of an "anxiety that a Name may be inhibited by the presence of his agent from raising queries or giving candid answers to questions" (see paragraphs 4.38 and 4.39 of the Neill Report). The Neill Report did not, however, require any alteration to the nature of the questions asked by the Rota Committee chairman.

Verification Form
With effect from 1979 (i.e. for 1980 joiners onwards), a revised verification form was introduced for all non-US applicants. The wording of the verification form which had been used for UK applicants in 1978 (i.e. for 1979 joiners) was supplemented in the revised form by the following additional wording:
(i) "I have received sufficient information to enable me to reach my decision to apply for Membership of Lloyd's. My Underwriting Agent(s) has/have given me the opportunity to ask questions concerning both Membership of Lloyd's and the syndicates I propose to join and to verify the information I have asked for and require" (paragraph 1 of the revised form);
(ii) "The Underwriting of insurance is a high risk business and profits are not guaranteed" (paragraph 2(a) of the revised form).
The above wording was already present in the verification form for US applicants in 1978 (i.e. for 1979 joiners) save that the wording referred to "risk business". The reference to "high risk business" was likewise introduced into the verification form for US applicants in 1979.
With effect from 1985 (i.e. for 1986 joiners), paragraph 2(a) of the verification forms for both US and non-US applicants was further amended to read: "The Underwriting of insurance is a high risk business and losses can be made as well as profits".
With effect from 1988 (i.e. for 1989 joiners), the following wording was added to paragraph 2 of the verification forms for US and non-US applicants: "My own experience and knowledge and the guidance I have received have enabled me to appreciate the risks as well as the benefits of membership of Lloyd's".

13. RITC - SOME GENERAL PRINCIPLES - THE ROLE OF THE MANAGING AGENTS/UNDERWRITER

Reinsurance To Close
The closure of a year of account was effected by the payment of a premium (the RITC premium) in respect of the members' underwriting liabilities allocated to that year to reinsure these liabilities into the following year of account. If a decision was taken not to close the relevant year of account, the account was described as having gone into "run-off" and no RITC premium was payable. The subsequent two years of account over the three year accounting period that were not being (or entitled to be) closed were known as "open years". Thus the first two years of the three-year accounting cycle were "open years." If a syndicate year was not closed by RITC, that year was "left open". 
As reported in the Chairman's statement in the 1987 Globals, at the end of December 1987 there were 76 syndicates with a total of 120 years of account left open. Problems associated with asbestos and pollution risks, together with other US liability business, appear to account for the vast majority of the run-off years. 
In the 1980s, there was a growing number of syndicates which did not close their accounts at the end of their third year.
Against the payment of a RITC premium, all syndicate members' undischarged liabilities in respect of risks allocated to the relevant year of account (including liabilities in respect of RITC of any preceding year of account) were reinsured without limit in time or amount into a succeeding year of account of the same syndicate; they could also, on occasion, be reinsured to close into a later year of account or by another syndicate. When RITC was underwritten by the same syndicate, the premium was set by the managing agent of both syndicates, in conjunction with the underwriter, acting for the Names on both years of account.
The amount charged by way of premium was required to be equitable between Names on the reinsured and reinsuring syndicates, having regard to the nature and amount of the liabilities being reinsured. RITC into a subsequent year of the same syndicate was not treated as premium income for the purposes of premium income monitoring. The Syndicate Premium Income Byelaw (No 6 of 1984) dealt with circumstances in which RITC by a different syndicate would form part of premium income for premium income monitoring purposes.
In the Merrett Judgment [1997] LRLR 265 at 313, I set out Some General Principles as to RITC.
As to the role of the managing agents/underwriter I said:-
"I turn to consider some general principles in relation to RITC and the role of the managing agents/underwriter and of the auditors.
"Reinsurance to Close" means an agreement under which underwriting members who are members of a syndicate for a year of account agree with underwriting members who comprise that or another syndicate for a later year of account that the reinsuring members will indemnify the reinsured members against all known and unknown liabilities of the reinsured members arising out of the insurance business underwritten through that syndicate and allocated to the closed year, in consideration of a premium and the assignment to the reinsuring members of all the rights of the reinsured members arising out of or in connection with that insurance business.
In computing a reinsurance to close the premium arrived at will take account of two elements: known outstanding claims and claims incurred but not reported (IBNR).
If a year is closed into a succeeding year the RITC is final. There is no mechanism for correcting past inaccuracies or inequities.

The Role Of The Managing Agents/Underwriter
The following propositions are largely derived from the regulatory materials... 
1. The amount charged by way of premium in respect of reinsurance to close should, where the reinsuring members and the reinsured members were members of the same syndicate for different years of account, be equitable as between them, having regard to the nature and amount of the liabilities reinsured. Compliance with "equity between Names" had to be demonstrated by the underwriter and managing agent in determining the reinsurance to close.
2. By... [1985] it was strongly recommended that whilst the decision whether to close a year of account of a syndicate was the responsibility of the managing agent in consultation with the underwriter, no year of account should be closed before the managing agent determined whether the syndicate auditor intended to give a qualified audit opinion in respect of that year of account.
3. The determination of the IBNR element required the exercise by the underwriter of judgment as to the level of IBNR which was appropriate, having regard to all relevant materials and after appropriate enquiries. The Further Explanatory Notes to Byelaw No.7 of 1984 published on 9.12.85 set out in paragraphs 18 to 24 a number of matters which might fall to be considered in computing the IBNR. These include the nature of the business written by the syndicate as one of the main factors affecting the size and relative importance of the IBNR element of the reinsurance to close. Different classes of business gave rise to different considerations. The Further Explanatory Notes also stated that the reinsurance to close must be supported by records setting out the manner and bases upon which the final figure was determined in sufficient detail to "show and explain" the nature of the transaction. The Further Explanatory Notes also provided that it was important that the process of determining the IBNR, the more judgmental aspect of the reinsurance to close exercise, was documented to the same standard as was adopted in relation to outstanding claims. Documentation should include a record of the overall factors taken into account by the underwriter in arriving at his approach to the reinsurance to close. This should cover those factors which the underwriter considered had a significant impact on the year of account and might refer to those which did not and the reasons why such conclusions were drawn. Although the Further Explanatory Notes were published on 9.12.85, the matters referred to derived from the Notes probably reflected the approach that ought properly to have been followed in earlier years and in particular from [1985].
4. If the amount to be charged by way of premium in respect of the RITC could not be arrived at with a reasonable degree of accuracy having regard to the nature and amount of the liabilities reinsured, the account should be left open.
5. Where at its normal date of closure a year of account is left open an amount to meet known and unknown outstanding liabilities must nevertheless be included. The same considerations as apply to a reinsurance to close (with the exception of equity between names) will be relevant notwithstanding the fact that the objective is not to determine the final profit or loss for the year of account.
I wish to add one footnote which follows from the above propositions. If the amount to be charged by way of premium in respect of the RITC could not be arrived at with a reasonable degree of accuracy it would be fundamentally wrong, instead of leaving the account open, to close the account and seek to expand the syndicate in the hope that by doing so the (expanded) syndicate would be able to weather the difficulties."

14. RITC - THE ROLE OF THE AUDITORS
In the Merrett judgment [1997] LRLR 265 at 314, I set out the following propositions as to the role of the auditors in relation to RITC:-

"The Role Of The Auditors
The following propositions are derived from the regulatory materials...
1. The auditors should obtain relevant and reliable audit evidence sufficient to enable them to draw reasonable conclusions therefrom (Operational Standard (issued April 1980)).
2. As to the nature of audit evidence, the sources and amount of evidence needed to achieve the required level of assurance were questions for the auditors to determine by exercising their judgment in the light of the opinion called for under the terms of their engagement. They would be influenced by the materiality of the matter being examined, the relevance and reliability of evidence available from each source and the cost and time involved in obtaining it (The Auditing Guideline - Audit Evidence (issued April 1980)).
3. As to representations by management, in certain cases, such as where knowledge of the facts was confined to management or where the matter was principally one of judgment and opinion, the auditors might not be able to obtain independent corroborative evidence and could not reasonably expect it to be available. In such cases, the auditors should ensure that there was no other evidence which conflicted with the representations by management and should obtain written confirmation of the representations. (The Auditing Guideline - Representations by Management (issued July 1983)).
4. For the purposes of the present case, from [1985] the report should state whether a true and fair view was given in the accounts.
5. As from [1985] the syndicate auditors should qualify their report if they were unable to obtain all the necessary information and explanations required. In the absence of a reference to these matters the syndicate auditors' confirmation thereof was implicit in an unqualified audit report.
(The following propositions are derived from the Audit Brief. Although the Brief is based on the Lloyd's Byelaws and the law as at 1.1.86 ...it reflected the approach that ought properly to have been followed from [1985]).
6. In selecting materiality levels, the auditor should have regard to the impact of syndicate transactions on the personal account of each syndicate member; he should look behind the syndicate to its constitution, as well as to the syndicate as a whole, in making judgments relating to materiality.
7. The auditor would need to be satisfied that the premium for the reinsurance to close a year of account was equitable as between the Names on that account and those on the accepting year of account. The determination of the premium for the reinsurance to close involved the exercise of significant professional judgment and drew on the full experience of the underwriter.
8. The Auditor's Operational Standard stated that "the auditor should obtain relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions therefrom". Since the audit report on syndicate financial statements was expressed in true and fair terms, the auditor would need to ensure that he had gathered evidence of sufficient quality to support such an opinion.
9. The reinsurance to close a year of account was normally the area of greatest audit difficulty, because it was derived with the benefit of a substantial degree of underwriting judgment. In common with all accounting estimates, it was one of a range of possible outcomes and the audit approach should recognise that the objective was to ensure that the reinsurance to close was within a zone of reasonableness rather than an arithmetically accurate figure. (See also paragraph 5 of Mr. Randall's letter of 18.3.82).
10. The auditor would need to consider such matters as the nature of the syndicate's business, the overall size of the syndicate, the impact of the reinsurance protection programme, and the accuracy of previous estimates as a part of his assessment of the appropriate range within which he would expect the premium for the reinsurance to close to fall.
11. The results derived from statistical techniques should be treated with a degree of caution, since historically derived data might not be an accurate guide as to uncertain future events. The auditor should, therefore, ascertain from the underwriter the underlying basis for his estimate of claims incurred but not reported, so that appropriate additional evidence could be collected to support the computation.
12. Other matters the auditor might consider as a part of the audit of the reinsurance to close included the following. The syndicate might have reinsured the run-off of other syndicates or companies and the auditor must satisfy himself that due account had been taken of the liabilities which were likely to arise under such contracts. This evidence would usually take a similar form to that relating to the syndicate's own business."
This passage from the Merrett judgment was accepted by the parties in the statement of agreed facts as to the Regulatory Background for the Auditing and Accounting Regime at Lloyd's (see chapter 11 above).

15. THE WITNESSES 

Witnesses Called By The Names

Mr. Christopher Stockwell
Mr. Stockwell became a Lloyd's Underwriter in 1979. He joined through the Outhwaite (Combined) Agency.
Mr. Stockwell was the first Name on the writ in Outhwaite I which was tried by Saville J. He was a member of the Outhwaite 1982 Names Association (but not of the Litigation Sub-Committee). A settlement was arrived at in about January 1992 whereby the Names recovered £116 million. Mr. Stockwell pointed out that this proved insufficient - "it went within 2 years".
In 1992 he became Chairman of the Lloyd's Names Association Working Party.
Mr. Stockwell chaired the Open Years Panel which reported in March 1993. In his witness statement Mr. Stockwell said that Mr. Robin Jackson and Mr. Merrett "were well aware of the fact that Lloyd's was grossly under-reserved for its liabilities in respect of asbestos and pollution and that it had been so under-reserved for over a decade at that time and that it had been a deliberate policy to only reserve enough to pay claims being settled, rather than to reserve for ultimate liability... I now have no doubt that we were told a fraction of what Jackson and Merrett knew and were being deliberately "steered" from making too dangerous a report for Lloyd's." The Report of the Open Years Panel is generally not consistent with the Names' case in this trial. I would have expected Mr. Stockwell to have learnt rather more about the asbestos problem in the course of the Outhwaite Litigation and his chairmanship of the Open Years Panel than he was prepared to accept in cross-examination.
Mr. Stockwell was adjudged bankrupt on 21.6.94 and discharged on 20.6.97. Over the course of 5 or 6 years (including this period) the action groups which were served by LNAWP paid about £600,000 on top of expenses in respect of Mr. Stockwell's services.
Mr. Stockwell was a member of the Kerr/Morse Panel.
Mr. Stockwell prepared detailed submissions on behalf of LNAWP to the Treasury and Civil Service Select Committee.
Mr. Stockwell's Trustee in Bankruptcy accepted the R&R Settlement Offer in the sum of about £5,000, but no payment was made.
Mr. Stockwell's public examination under oath took place in June 1997.
In his witness statement Mr. Stockwell said "Lloyd's ... grossly misrepresented the profitability of the market to the 20,000 Names who joined post 1980 or who increased their underwriting post 1980... If, at any time from 1978 onwards, Lloyd's syndicates had reserved in full for the known notified claims and had made proper reserves for their ultimate liability, Lloyd's would have declared huge losses and would have been obliged to leave the year of account open for a very substantial number of syndicates... New Names joining (if any) would not have taken on the inevitable losses... It is obviously possible that Lloyd's would not have survived the blow to its reputation that such losses would have meant; that fear clearly influenced the strategy of Committee Members who adopted a policy of letting tomorrow's income pay for tomorrow's claims. Their gamble did not work; it was in my view the oldest insurance fraud in the book - misrepresenting profitability by not reserving for known liabilities." When giving evidence Mr. Stockwell added that he came to the conclusion in 1997 that this was not simply a case of regulatory failure but a case of fraud.
When giving judgment on 20.12.1991 (on an appeal from a District Judge) in K.L. Construction Services Ltd v Charles Barr Furniture Ltd, His Honour Judge Rice described Mr. Stockwell as "a dishonest man, a man who is prepared to lie if he feels it will be of assistance to him...".
I have carefully considered Mr. Stockwell's evidence in this trial and formed my own opinion (independently of above comments). There are a number of aspects which cause me concern. In paragraph 17 of his witness statement Mr. Stockwell made serious allegations against the DTI by reference to a meeting which he did not attend. Mr. Stockwell failed to mention in his witness statement that he had himself attended other meetings with the DTI. In a further witness statement Mr. Stockwell described a meeting with Mr. Posgate on 30 October 1996 (where, he alleged, Mr. Posgate referred to a report prepared by the Bank of England on the "Armageddon" scenario of the current weight of asbestos claims). No mention of this part of the conversation with Mr. Posgate was made in paragraph 50 of his original statement, which described the same meeting with Mr. Posgate.

Mrs. Catherine Mackenzie-Smith
Mrs. Mackenzie-Smith (a member of the Bar) is one of the two co-chairmen of the United Names Organisation. She became a member of Lloyd's from 1.1.75.
It is evident that (as with so many other Names) Mrs. Mackenzie-Smith has suffered financially and in other ways as a result of her membership of Lloyd's, and I have every sympathy for her in this regard. 
Mrs. Mackenzie-Smith's first witness statement contained an account of contact with and information received from Mr. John Osbrey-Taylor, a barrister who was found dead on 18 February 1999. Mr. Osbrey commenced proceedings in about 1991 against his members' agent, such proceedings falling within the Portfolio Selection category of the Lloyd's Litigation. Mr. Osbrey signed (i) a statement at the offices of ANNAN probably on 1 August 1995 and (ii) an affidavit in People of the State of California v Lloyd's, dated 15 February 1996. There are marked inconsistencies between (i) and (ii). In (i) Mr. Osbrey implied that he read a copy of the Murray Lawrence letter for the first time during 1994; in (ii) he stated that in or about 1989 he had been given a copy of the Murray Lawrence letter. In (i) he said that he saw Mr. Murray Lawrence in May 1995; in (ii) he said that in 1992 he went to see Mr. Murray Lawrence.
The most reliable guide to Mr. Osbrey's exchanges with Lloyd's from time to time is found in bundle M5, which contains documents passing between Mr. Osbrey and Lloyd's and file notes etc. A file note dated 30 June 1995 shows that Mr. Osbrey told Mr. Norwell (Manager, Membership Department) that as a result of a recent conversation with Mr. Murray Lawrence regarding the Murray Lawrence letter, Mr. Osbrey wished Lloyd's to sue him so that he could issue a counter-claim alleging fraud against both Mr. Murray Lawrence and Sir Peter Miller. 
A document dated December 1998 shows Mr. Osbrey as a committee member of the Restitution Initiative.
Regrettably it appears that Mr. Osbrey was in a parlous financial state in his latter years (in receipt of substantial support from the Barristers' Benevolent Association) and to a considerable extent disturbed.
In a document entitled "Narrative Which Could Be Adapted To Become A Draft Affidavit" Mrs. Mackenzie-Smith wrote - "In the summer of 1994, I first saw the now famous Murray Lawrence letter... The letter came as a shock to me as it seemed to demonstrate that Lloyd's were not after all fraudulent but had in fact disseminated the information concerning impending losses to "all underwriting agents". I immediately made enquiries in all directions and learnt that no agent could be found who admitted having received the letter and that there was a possibility that it had never been sent."
The document entitled "Narrative Which Could Be Adapted To Become A Draft Affidavit" was exhibited to Mrs. Mackenzie-Smith's witness statement. Another version of this document with manuscript comments/corrections by Mr.Osbrey was found in the box of Mr. Osbrey's papers produced by Mrs. Ridley-Day (see below). Mr. Osbrey's comments/corrections are highly material and show that Mr.Osbrey would not have been prepared to put his name to the matters attributed to him in the document without substantial amendments.
Mrs. Mackenzie-Smith's account of her conversation with Mr. Ian Posgate in paragraph 42 of her witness statement was incomplete. It is important to note the amendments that Mr. Posgate made to the draft statement prepared for him.
When giving evidence Mrs. Mackenzie-Smith found it difficult to distinguish between the role of a witness and the role of an advocate.
Mrs. Mackenzie-Smith gave evidence as to the results of three mail shots directed to managing agents, members' agents and combined agents in an attempt to ascertain to whom the Murray Lawrence letter was sent.

Mr. John Henderson
Mr. Henderson is a consultant working for UNO and also a member of the Committee of UNO. He has assisted Names in other proceedings in this jurisdiction and in the United States.
Mr. Henderson referred to a meeting with Mr. Ian Posgate in March 1999 at the offices of UNO in Whitechapel Road. It is important to note the amendments that Mr. Posgate made to the draft statement prepared for him.

Captain Donald Hindle FNI, FRIN
Captain Hindle had a distinguished maritime career. In 1976 Trinity House invited him to become a Young Brother. He commenced underwriting at Lloyd's with effect from 1 January 1979. His members' agent was C. Rowbotham & Sons (Underwriting Agency) Ltd. 
I should emphasise that I am not concerned with the question whether Captain Hindle might have had a portfolio selection claim (or any other form of claim) against his members' agent, or any claim against any managing agents.
I am concerned with the issue whether Captain Hindle as one of the sample Names relied upon any of the alleged (fraudulent) misrepresentations during the period 1978 to 1988.
It was clear from Captain Hindle's evidence that he misunderstood certain essential features of the Lloyd's market. He thought that the Committee of Lloyd's appointed syndicate auditors. Further he thought that "the underwriter was controlled to some extent by the policy signing office, which was in turn appointed by the Committee of Lloyd's". Captain Hindle said he would not have joined Lloyd's if he had known that his liabilities and the risk could extend beyond a three year period.
Captain Hindle said that he relied on Lloyd's Calendar 1978 when he joined Lloyd's. Subsequently he talked to his members' agent (and his witness statement refers to a number of conversations with his members' agent). There was not a copy of the relevant Lloyd's Brochure in Captain Hindle's files. He said that the Lloyd's Calendar 1978 "was on the ship and I remember reading it and that was the reason I joined Lloyd's...after (speaking) to my agent and (obtaining) more information."
Captain Hindle sustained very serious losses in respect of each of the years 1988 to 1994 and I have every sympathy for him. I doubt whether he was ever an appropriate candidate for membership of Lloyd's.
I am not persuaded that Captain Hindle relied upon any of the alleged (fraudulent) misrepresentations during the period 1978 to 1988 (assuming such misrepresentations could be made out).

Sir William Jaffray Bt.
At the time of his application for underwriting membership Sir William Jaffray was a fine art dealer. Prior to that he had had brief experience as a loss adjuster. Sir William commenced underwriting at Lloyd's with effect from 1 January 1982. His first members' agent was Kingsley Underwriting Agencies Ltd.
I should emphasise that I am not concerned with the question whether Sir William might have had a portfolio selection claim (or any other form of claim) against his members' agent, or any claim against any managing agents.
I am concerned with the issue whether Sir William as one of the sample Names relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period.
Mr. Kingsley provided Sir William with a brochure prepared by Kingsley Underwriting Agencies Ltd.
Sir William did not see the 1980 and 1981 Aggregate Results published in Lloyd's Log. It is unclear whether he saw the 1982 and 1983 Global Accounts.
In his affidavit in the Society of Lloyd's v Fraser and Others, Sir William said:-
"Robin Kingsley enthusiastically told me that Lloyd's was a sound, blue chip institution in which I would be well advised to invest. I was told by him that there was no prospect of me being out of pocket, as in the event of a loss I could simply write it off against taxed income. ...I told him that I wanted a reasonable return at a low risk. I recall that Robin Kingsley assured me that he would arrange a portfolio of syndicates which would produce a return of approximately £4,000-£5,000 a year at a low risk. As I was required by Lloyd's to do and as I did at all times subsequently, I relied upon the expertise of my members' agent as to the appropriate syndicates required to achieve my objectives. ...I was constantly being encouraged to increase my premium income limit by Robin Kingsley... In 1987 I changed my members' agent because the losses I suffered on the 1984 year of syndicate 553 (£107,466) were of such a magnitude that I lost all confidence in Robin Kingsley's conduct of my Lloyd's affairs. I in fact gave serious consideration to resigning from Lloyd's because I was appalled by my members' agent's conduct and what I considered to be his betrayal of my trust and confidence in placing me on a high risk, long-tail syndicate such as syndicate 553... Before I had a chance to tender my resignation, I was introduced to Sir Richard Colthurst of K.C. Webb (Underwriting) Ltd who persuaded me not to proceed with my resignation and instead to use his company as my members' agent. ...He quite forcibly said I ought to trade through my losses from syndicate 553. He talked me out of my reservations and gave me recommendations as to various syndicates..."
A document typed by Sir William in about the summer of 1987 shows that he was taking portfolio selection advice from persons other than his members' agent.
I am not persuaded that Sir William relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period (assuming such misrepresentations could be made out). In my view the probability is that Sir William relied on his conversations with his first and second members' agents (and possibly, but to a more limited extent, his conversations with his cousin).
At the end of his evidence Sir William said what he thought Lloyd's should have done "if they had been operating properly and in an honest manner". "The Chairman should have called an extraordinary general meeting in 1980 or, if one wants to be fair to Lloyd's, say, by 1982. There should have been no recruitment of Names beyond that point, that should have been stopped... There should have been a public statement. Reconstruction and Renewal or a similar salvage operation, plus an Equitas type reinsurance, should have happened between 1980 and 1982...and not 16 years later in 1996 when the vast quantity of damage had been done. If that had been done we would not be in this Court now."
I refer to Sir William's underwriting results. These show that he suffered significant losses on Gooda Walker 387 (personal stop loss) in 1983 and 1984 and a substantial loss on the Warrilow (long-tail) syndicate 553 in 1984 (see above). He suffered a further significant loss on syndicate 387 in 1985 and substantial losses on Gooda Walker syndicates 290 and 298 in 1989. Although Sir William was on Secretan 367 (a long-tail syndicate) between 1982 and 1989, his losses in 1988 and 1989 on that syndicate were modest compared with his losses in 1988 and 1989 on LMX syndicates.

Mrs. Dona Evans
Mrs. Evans commenced underwriting at Lloyd's with effect from 1 January 1988. At that time she was still married, but has since divorced. She has four children. Her members' agent was R.W. Sturge & Co.
I should emphasise that I am not concerned with the question whether Mrs. Evans might have had a portfolio selection claim (or any other form of claim) against her members' agent (her witness statement refers to a number of conversations with her members' agent), or any claim against any managing agents.
I am concerned with the issue whether Mrs. Evans as one of the sample Names relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period.
For some years Mrs. Evans has been co-chairman of the Norwich Union Action Group at times unpaid, at times paid. She has been on the committee of UNO since UNO started, but has not been paid for her work with UNO.
Mrs. Evans said that she was induced to join Lloyd's by a combination of matters. "It was certainly the reputation of Lloyd's as a very honourable market...I read all the Brochures. They were presented to me as if this was a really...good thing...it was the best time to join. I checked this out with people that I knew and then I went back to Mr. Coleridge and asked him. But the Brochures...were really the thing that did it...because they (were)...written...I would want something in writing as well, so the Brochures were very important to me...also...the Lloyd's building. It was totally spectacular, breathtaking, it was so futuristic. It spelt so much of the future. ...It seemed incomprehensible that they could...take...the kind of risks that they were taking with someone like me."
Mrs. Evans sustained very serious losses and I have every sympathy for her. I doubt whether she was ever an appropriate candidate for membership of Lloyd's.
I am not persuaded that Mrs. Evans relied upon any of the alleged (fraudulent) misrepresentations during the Relevant Period (assuming such misrepresentations could be made out). In my view the probability is that Mrs. Evans relied on her conversations with her members' agent.

Dr. Alexander Munn
Dr. Munn's witness statement was admitted in evidence (Lloyd's not having any cross-examination). 
Dr. Munn is a registered medical practitioner. During 1985 he decided to become a member of Lloyd's. His wife became a member in 1987. In his witness statement Dr. Munn said:-
"I now know that at the time of my Rota interview there were massive impending liabilities arising from asbestos-related disease which were affecting the Lloyd's market. I have also come to know about...the Neville Russell letter and the Murray Lawrence letter...I was wholly unaware of these matters in 1985, and no mention was made in interview of the potential exposure to such liabilities."
Dr. Munn attached to his statement a letter from Lord Kimball an elected external member of the Council of Lloyd's and the Chairman of Dr. Munn's Rota Committee. The letter from Lord Kimball dated 17 February 1995 stated:-
"I cannot help you about "enormous losses from asbestos-related disease": I knew nothing about it, and I am confident that nothing had been said to other members of the Council".

Mr. Christopher Mackenzie-Smith
Mr. Mackenzie-Smith gave evidence about the availability of a book entitled "A View of the Room" by Ian Hay Davison. I do not accept that Lloyd's purchased copies of this work in order to destroy it.

Mr. David Blundell
Mr. Blundell's wife joined Lloyd's for the 1987 underwriting year with Bolton Ingham as her agents. Mr. Blundell gave evidence of a conversation with Mr. Skey in 1988/89/90. According to Mr. Blundell's witness statement Mr. Skey "told me on the basis (of) what he had discovered at Lloyd's, he had told his sister to resign immediately. I presume he had told her in the 1970s or perhaps in the early 1980s."
This evidence did not assist me. First, Mr. Blundell did not ask what Mr. Skey "had discovered". Second, it seems that Mr. Skey's sister did not resign from Lloyd's until much later.

Mr. Roger Bradley
Mr. Bradley joined Janson Green in October 1967 as an underwriter. He wrote marine business into syndicates 932, 933, 934, 941 and 989. From about 1970 he also wrote some non-marine business into syndicate 989. Mr. Bradley stayed at Janson Green until the latter half of 1977 when he was invited by Mr. Bryan Barrie to be his equal partner and active joint underwriter in the Bryan P. Barrie Underwriting Agency. Syndicate 901 wrote marine and syndicate 921 non-marine business. In his witness statement Mr. Bradley said " We specifically wanted to avoid asbestos liabilities being aware of the potential problem." The Bryan P. Barrie Underwriting Agency received three copies of the Murray Lawrence letter (one for the managing agency, one for Bryan Barrie as active underwriter of syndicate 901 and one for Mr. Bradley as active underwriter of syndicate 921). 
In about 1993 or 1994 Mr. Bradley began to work for the Names Defence Association. 
From about 1988 when Mr. Bradley resigned from Bradley Gascoigne, through to the time when he was working for the Names Defence Association, Mr. and Mrs. Bradley were in hardship. Mr. Bradley has received payment to date from the Names Defence Association of about £10,000.
I set out below examples of the unsatisfactory nature of Mr. Bradley's evidence.

The Lloyd's Golf Club Autumn Meeting at Walton Heath
In his witness statement Mr. Bradley said:-
"On 4 October 1973, I played in the Lloyd's Golf Club Autumn Meeting at Walton Heath. One of my opponents was Ralph Rokeby-Johnson, a leading non-marine underwriter with the Sturge Agency. Ralph Rokeby-Johnson asked me during the course of the match the following question: "Has Green got all his reinsurance for asbestos in place and has he got enough of it? Has he got it placed off-shore?". ...Later on the same day... Rokeby-Johnson spoke to me in the terms, which I shall never forget, which were as follows: "What I can tell you, my friend, is that asbestos is going to change the wealth of nations. Lloyd's will probably be bankrupted in the final chapter, unless something happens to intervene, i.e. the Government via the Bank of England or legal duress on the Americans, but it will happen and we cannot stop it." He spoke of possible claims of US$66 billion by 1990 and US$120 billion by the year 2000... At drinks, after the golf match...I asked him: "How do you know your estimates are on target?". He appeared irritated by this question and responded: "I don't know; it is only a judgment. US$6 billion or US$66 billion, it all depends on asbestos in buildings and how many time bombs there are". ... "Time bombs are victims walking, sleeping, talking, who are living but have lung cancer. When they die, as they will do up to the year AD2000, the lawyers are going to have a field day. We don't know how many are affected. They don't yet so pick a figure but it won't be far off the ones I have told you."
According to Mr. Bradley the next day he reported the conversation to Mr. Bill Maitland, a fellow underwriter at the Janson Green box. Mr. Maitland spoke to Mr. Peter Green who was very interested in what he (Mr. Bradley) had to say, but he was told not to gossip about the conversation with anyone in the market.
There were a number of unsatisfactory features of Mr. Bradley's evidence in relation to the alleged conversations at Walton Heath. They included the following: (i) When Mr. Bradley's various accounts of the alleged conversations with Mr. Rokeby-Johnson are compared, there are a number of material inconsistencies. (ii) In paragraph 3 of his draft affidavit for the Secretan Action Group dated February 1994 Mr. Bradley wrote "The next day I mentioned my conversation with Rokeby-Johnson to Bill Maitland in the box. Shortly after this he excused himself saying that he had something to do elsewhere. Obviously he then went to speak to Peter Green because the next day he told me that if I was asked about asbestosis I should refer the matter to Peter Green." On this account Mr. Bradley mentioned his conversation with Mr. Rokeby-Johnson to Mr. Maitland on Friday 4 October 1973 and Mr. Maitland spoke to Mr. Bradley again (having spoken to Mr. Green) "the next day" i.e. on the Saturday (not a working day at Lloyd's). (iii) In his draft affidavit for the Secretan Action Group Mr. Bradley wrote "My opponent was Ralph Rokeby-Johnson, the leading non-marine underwriter at Sturge". In fact Mr. Rokeby-Johnson was not the leading non-marine underwriter at Sturge at the time. When this was pointed out to Mr. Bradley in cross-examination, he said "We had better tear up this Secretan statement". (iv) In a statement dated 23 February 1995 Mr. Bradley wrote "Ralph Rokeby-Johnson spoke of possible claims of $66 billion by 1990 and $120 billion by the year 2000. These figures have now been confirmed as being the same figures as those in the Selikoff Report of 1964..." The alleged figures were not "the same figures as those in the Selikoff Report". When cross-examined as to this Mr. Bradley said "When I was making this, talking this over with the Names Defence Association, James Baird said to me...Those figures...are in...Selikoff". (v) In one of his manuscript accounts headed "Asbestosis at Walton Heath" Mr. Bradley wrote "It was either late 1969 or early 1970: the Lucifers match". This was subsequently corrected to read "It was 4th October 1973 (confirmed by Ian Jeffrey): Lloyd's GC Autumn Meeting". (vi) In his manuscript account headed "Asbestosis at Walton Heath" Mr. Bradley wrote "I was disturbed over the incident. I knew RJ was on the Asbestosis Committee and that they had not given the market much information." Mr. Bradley accepted that this was a "slip". The Asbestos Working Party was not set up until 1980. (vii) In the same manuscript account Mr. Bradley recorded Mr. Rokeby-Johnson as saying "See whether I am right or not - I shall be gone long before you". In fact Mr. Rokeby-Johnson is considerably younger than Mr. Bradley. (viii) In the same manuscript account Mr. Bradley wrote "Ralph, then on the back of his card, very quickly drew out a progression of known cases...". In cross-examination Mr. Bradley said "I don't think he did that; I think I did it". (ix) For the first time when giving evidence Mr. Bradley asserted that on 4 October 1973 Mr. Rokeby-Johnson specifically warned him off joining certain syndicates which were listed in a document, which Mr. Bradley produced when giving evidence. (x) Further (although this is a point of less significance) Mr. Bradley's various accounts referred to the alleged conversation taking place on differing holes on Walton Heath golf course.

Visit to the United States in 1979
Mr. Bradley went with other representatives of Lloyd's to the United States in May 1979 on the Keith Brown Foundation Study Tour.
In his witness statement Mr. Bradley said :-
"I...went to the offices of Citibank where I met Tom Hitchcock. After meeting Tom Hitchcock in the offices of Citibank I had dinner with him. ...I remember discussing with him that the Lloyd's market probably took approximately 40% of the US asbestos business. I cannot remember exactly how I knew that figure; perhaps Ralph Rokeby-Johnson had told me. ...Hitchcock said to me that he was concerned that there simply would not be sufficient money in the Lloyd's American Trust Fund to meet all known liability... He then suggested that the only way out of the crisis for Lloyd's would be for Lloyd's to try to increase its capital base by recruiting more Names. ...We talked in terms of between 25,000 to even 250,000 Names... I...promised Tom Hitchcock that I would raise the issue back in London and when I got back, I telephoned Ralph Rokeby-Johnson and Murray Lawrence and asked them if I could meet with them over coffee one morning. I met with them and went through my conversation with Tom Hitchcock and his request to me that I tell the Committee of Lloyd's that it needed more members to deal with the pending problem. I explained that he had told me that he had said this to every visiting Committee member of Lloyd's. Ralph Rokeby-Johnson said that they were aware of this problem and of Citibank's concerns and he recommended that I keep the knowledge to myself. He said that I had discharged my duty in passing on the message from Tom Hitchcock. He said there was an unofficial committee in the background looking at this problem and, in particular into the question of reserving into the future for asbestos, and the matter was under control. He said that Peter Cameron-Webb and Peter Green were also on it, but I was to keep this information to myself. This was, I believe, the forerunner of the Asbestos Working Party which was formed the next year on 5 August 1980."
There were a number of unsatisfactory features of Mr. Bradley's evidence in this respect. They included the following. When Mr. Bradley's various accounts of the alleged conversation with Mr. Hitchcock are compared, there are a number of material inconsistencies. The following points should be noted by way of example. The visit took place in May 1979 and not in September 1979 as asserted in his witness statement. In his witness statement Mr. Bradley said that Mr. Alan Parry was then chairman of the Foundation (but in fact Sir Henry Mance was Chairman). In his witness statement Mr. Bradley said that he was a member of the Keith Brown Advisory Committee at the time (but he was not). In a document in Mr. Bradley's handwriting written in about 1992 (and in a LNAWP newsletter dated January 1993) reference is made to Tom "Hopkinson" and not Tom Hitchcock. Mr. Bradley's account is difficult to reconcile with the draft itinerary (dated 7.5.79) and the unofficial notes on the New York trip prepared by Mr. R. M. Pateman dated May 1979. In a manuscript account dated about 1992 Mr. Bradley wrote "He urged that Lloyd's should build up to a membership of say 200,000 to 250,000 members to pull in the required capital needed to run the asbestosis tidal wave. He has told Lloyd's this - he told me Lloyd's was on a membership drive..." In a signed statement dated 23 February 1995 Mr. Bradley said "We did not calculate precisely the number of Names that Lloyd's should seek to recruit...we talked in terms of 25,000, 50,000 or possible even a 100.000 as a goal. I jokingly added "What about even 250,000?". He laughed and replied "Yes, why not?"
When Mr. Bradley gave evidence he said that he attended a private dinner with Mr. Hitchcock on Friday 18 May 1979. He was recalled for further cross-examination when it emerged (as a result of further statements from Mr. and Mrs. Hitchcock) that Mr. Hitchcock travelled to Japan that Friday, as confirmed by his passport. Faced with this evidence Mr. Bradley said that "there is the possibility it could be another person". Mr. Bradley added that he did not recognise the photograph in Mr. Hitchcock's passport - "I don't remember him being bald".

Conversation with Mr. Paul Schooling in January/February 1982
In his witness statement Mr. Bradley said:-
"In January/February 1982, Paul Schooling, the Deputy Secretary...handed me a document headed "In the Supreme Court of the United States October Term 1981 Number 81-1012 Insurance Company of North America (Petitioner) v Keene Corporation (Respondent) Motion for Leave to File - December 30 1981 (attached to this statement)". He said "Ralph Rokeby-Johnson asked me to give you this - it's very explosive and has caused some anxiety to some members in the NMA and as you are one, you ought to see it and let us know your comments, especially in the light of your recent visit to New York". I remember quickly reading this document and feeling very numb when its implications welled up inside me. I asked "What are his comments". Paul was quiet and then having sat down, said, Ralph said, "Remember what he told you at Walton Heath - moving the wealth of nations - Lloyd's will be bankrupted unless outside financial aid is brought in to play and legal duress on America is applied. Apparently, it is all there in this document dated December 1981! - Now does he believe me?". I responded, "Paul, I have always believed Ralph - it's just that out of the blue - the stark reality of what he said at Walton Heath was hard to take in!". Paul left and I filed this document away in my asbestos drawer and took the attached copy with me home where I filed it away safely. In fact, it was filed so safely that I only unearthed it very recently in November when I had a massive trawl through my documents. Having re-read this document again in November 1999, I feel even more numbed than I was in 1982..."
There were a number of unsatisfactory features of Mr. Bradley's evidence in relation to this alleged conversation. They included the following. The "attached copy" was not a copy Mr. Bradley "unearthed...very recently in November...1999". Further Mr. Bradley mentioned the alleged conversation with Mr. Schooling for the first time in his witness statement. It was not mentioned in his earlier accounts (see his draft affidavit for the Secretan Action Group dated February 1994, his statement of 23.2.1995 and his manuscript notes).

Telephone conversation with Mr. Charles Gibb
In his witness statement Mr. Bradley said that at the hearing on 1 February 1995 before the Treasury and Civil Service Committee he informed the Committee of a telephone conversation he had had with Mr. Charles Gibb, a one time deputy chairman of Lloyd's. He said:-
"I believe that it was late 1992 or 1993 (corrected to about July 1992)...I... inquired whether there had been a conspiracy at Lloyd's over asbestos...I still vividly recall him saying "I will go as far as saying that we side tracked the issue. We did not really know what the actual figures were, there were some terrible figures floating around, nobody could put a finger on what you were actually due to pay and the Bill was coming up. The 1982 Bill, we did not want any scarecrows or any skeletons in the cupboard ... We did side track the issue." 
Mr. Gibb died in early 1993.
Mr. Bradley produced a tape of a conversation with Mrs. Gibb dated 28 March 2000. Mrs. Gibb was recorded as saying that she had changed her mind about providing Mr. Bradley with a letter, whereupon Mr. Bradley responded that he was going to pull out (from giving evidence). In the event Mr. Bradley attended pursuant to a witness summons.

Other matters
On 29 October 1990 Mr. Bradley wrote to Mr. Murray Lawrence setting out his thoughts on the future of Lloyd's entitled "Towards Two Thousand". When it was pointed out to him in cross-examination that there was no suggestion in that document of any of the type of complaints made in these proceedings, Mr. Bradley replied "If by producing that...I've cut the ground from under the Names in this court, I...hereby apologise to them."
On 18 November 1991 Mr. Bradley wrote to Sir Patrick Neill Q.C. (as Chairman of the Feltrim Loss Review Committee) describing the transcript of his evidence to the Loss Review Committee as "no different from a Frankie Howard script, at its worst, being studied with almost no cohesion or coherence."
In reasons for an arbitration award dated 5 July 1995 Mr. Jeffrey Gruder Q.C. said :-
"Mr. Bradley [who gave expert evidence] sought to convince me that the Respondents knew that asbestosis was a serious problem by mid-1987. ...I do not accept the argument that the presence of these problems had the consequence that any members' agent who did not recommend resignation from Lloyd's was automatically in breach of duty. It is necessary to examine the individual circumstances of each particular case and the portfolio recommended by the agent."
In an interim final award dated 10 February 1997 Miss Elizabeth Birch said of Mr. Bradley's evidence as a purported expert:-
"Unfortunately, Mr. Bradley did not appear to be experienced in giving expert evidence... His evidence did not focus particularly well on the issues raised in the arbitration. Mr. Bradley made a number of very sweeping allegations concerning the Lloyd's market as a whole and the position in relation to asbestos and pollution. Mr. Bradley set out to establish, not that the syndicates were inadequately reserved and that the Respondent should have been aware of this, but that the asbestos and pollution liabilities in America were, by 1988, such that the impact would be felt in all syndicates at Lloyd's and that "Armageddon was nigh". In short Mr. Bradley expressed the view that those in the market, including the members' agents, knew that Lloyd's as a whole was so heavily involved in asbestos and pollution that the losses would pervade across all or most syndicates and ultimately would be catastrophic. Hence, Mr. Bradley considered that it was negligent of any members' agent at this time to advise a Name to increase the size of his portfolio. He considered that the Respondent should have advised Mr. Huskinson to cease underwriting...or, at least, he should have been encouraged to stay small and purchase substantial stop-loss cover. This case was not one that had been pursued by Mr. Huskinson either in his submissions or in his evidence... Mr. Bradley contended that he had considerable experience of the practice of members' agents because he liaised with the members' agents side of Bryan P. Barrie Underwriting Agencies Ltd, when he was the active joint underwriter there between 1977 and 1980."
When cross-examined in this case Mr. Bradley was asked how many Names did the members' agents side of Bryan P. Barrie Underwriting Agencies Ltd have? He replied, one. In July 1996 in connection with the same arbitration Mr. Bradley wrote to the Financial Times Library "The Arbitrator has now instructed me to write to you asking if you would kindly supply me with the exact copy of [a] report in the Financial Times 26 July 1984". On 31 July 1996 the Arbitrator wrote to Mr. Bradley "...you are well aware that at no time have I asked you to write this letter. ...It is wholly inappropriate for you to represent that it is a request from me, when it is not."

Mr. Colin Mackinnon
Mr. Mackinnon was the underwriter on 927/935. He was also the underwriter on two specialist stop loss syndicates, 134 and 184. Syndicates 134 and 184 were two entirely separate syndicates with different sets of Names. Mr. Mackinnon was an articulate witness.
Mr. Mackinnon explained that a feature of a stop loss syndicate is that it closes its accounts at the end of the fourth year. He said that if he had known at the time, what is now known about APH claims, he would never have written the stop loss policies.
As to syndicate 927/935, the 1981 account was left open at the end of the third year but closed at the end of the fourth year into the 1983 account. One reason for this was the development of latent disease claims on the run-off of syndicate 60, contained within syndicate 935. The 1984 year of account of 935 was left open. The 1984 account of 927 was closed in the usual way.
In his underwriter's report dated 21 May 1987 Mr. Mackinnon wrote:-
"Within the syndicate 60 run-off there are a number of elements where prediction of future development remains impossible to quantify with any degree of accuracy. Development on asbestosis, environmental pollution, American court awards and the availability of reinsurance recoveries are areas that immediately come to mind. It is because of this wide and unpredictable range of possibilities relating to the run-off of the incidental non-marine syndicate, particularly the syndicate 60 content thereof, that we have felt obliged to keep the 1984 account of syndicate 935 open as at 31.12.86. The marine syndicate 927 has been reinsured into 1985 account in the usual way."
A limited run-off had been bought in 1982 which was written as to 50% by Outhwaite 317 and 50% by the Kellett syndicate.
Mr. Mackinnon said that each year he sought to reserve fully with the benefit of the information coming through from attorneys and the AWP. He thought he had got his reserving right using a pessimistic basis for determining the level of IBNR. When he bought a limited run-off in 1982, he refused an offer that would have provided greater protection. He left the 1984 year of 935 open at the end of 1986 in part because of a problem of a declining stamp and largely because the syndicate 60 run-off into 935 was very large in relation to the size of syndicate 935. He established reserves for the account in run-off but unpredicted increases in claims thereafter caused him to have to make further substantial increases in the reserves. Mr. Mackinnon did not believe at the time that the market was under-reserved, otherwise he would not have continued to write stop loss which he did until 1988. It is ironical that the accounts as at 31 December 1987 record that:-
"When the computations based upon the 1984 syndicate accounts were submitted to the Inland Revenue in the Autumn of 1987, ...the Inspector of Taxes...challenged the quantity of the amount set aside to meet future liabilities in respect of the unclosed incidental non-marine section of the syndicate. After correspondence with the Revenue and discussion with the syndicate auditors, it was reluctantly agreed to accept an aggregate disallowance of £250,000 in respect of the reserve set up."
At one point in his evidence Mr. Mackinnon said of asbestos-related claims "We knew how much we would pay as a syndicate for each claim. The multiple of claims was the problem..."
In his witness statement Mr. Mackinnon said "I am not aware of ever having received" the Murray Lawrence letter. When giving evidence he said "I maintain I have no recollection of having seen it...it was sent to underwriting agents, according to the letter. On that basis I should have seen it. I have no recollection of having seen it, but...I probably got a thousand letters from the Committee of Lloyd's during my life as an underwriter".
In early 1992 a Loss Review Committee sat in respect of 134 and 184. 

Mr. Edward Cowtan
Mr. Cowtan joined the Alders syndicate (122/311/118) in 1967. He remained with that syndicate until the end of 1983. He was the Senior Claims Manager for the general non-marine section. 311 had a significant exposure to asbestos; 118 was exposed to a slightly lesser extent. In his last 18 months/2 years Mr. Cowtan occasionally sat in at a meeting of the AWP on behalf of Mr. Nelson. 
Mr. Cowtan started underwriting at Lloyd's on 1 January 1974 as an assisted Name. Mr. Cowtan said that he increased his line on the Alders syndicate before he became aware of the seriousness of asbestos. He remained a Name until the end of 1978. When asked "What caused your decision to stop underwriting?", Mr. Cowtan replied "I was warned that there was a very serious problem arising from asbestosis and also there were a number of quite serious product claims". Mr. Cowtan was shown a letter from Bellew & Raven (Underwriting Agents) Ltd to the Manager of the Membership Department at Lloyd's dated 19 June 1978 which stated "Mr. Cowtan is worried about the increasing competition in the insurance world and has decided to wind up his Lloyd's affairs before his retirement." Mr. Cowtan said he had not seen the letter before and was very disappointed at its content.
Mr. Cowtan explained that he had not provided a witness statement to the Names because "It was being written for me...A number of the comments that were being put in there...were simply incorrect". He said that he thought the witness statement was prepared by Mr. Stockwell, although he could not be 100% sure of that.

Mr. Robin Kingsley
Prior to 1988 Mr. Kingsley ran three members' agents. After about 1988 Kingsley Underwriting Agencies Ltd and Sudbrook Underwriting Agencies Ltd merged into Lime Street Underwriting Agencies Ltd. Mr. Kingsley was a director of Holmes Kingsley Carritt Underwriting Agencies Ltd a managing agency, which was renamed Holmes Hayday Underwriting Agencies Ltd (syndicate 694) before being acquired by Sturge Underwriting Management Ltd. He resigned as director of the managing agent of syndicate 694 on 1 November 1985 to comply with the divestment provisions of the Lloyd's Act 1982. Mr. Kingsley was also a director of Hardcastle Underwriting Agencies Ltd a managing agency, which was renamed Cutler Underwriting Agencies Ltd (syndicate 319/318). He was in addition a director of Scott Underwriting Agencies Ltd., a Lloyd's members' agency. Mr. Kingsley is now retired.
Under the R&R settlement Mr. Kingsley was disentitled to debt credits of over £1.3 million. This was because he was an executive director of Lime Street Underwriting Agencies Ltd, who at the time were members' agents to Names who suffered excessive losses above market average. A large percentage of these Names were placed on the Feltrim and/or Gooda Walker syndicates. In cross-examination Mr. Kingsley agreed that with the benefit of hindsight a spiral was created - one set of Lime Street Names wrote stop loss cover for the other set of Lime Street Names, both sets also writing excess of loss cover on Gooda Walker and/or Feltrim.
In his statement Mr. Kingsley said "We were one of the first members' agents to produce a questionnaire which we completed together with each underwriter... whenever possible at his office. This was done with a view to establishing a pattern or proforma, for a dialogue with each underwriter, who we supported by placing our Names on their syndicates." Mr. Kingsley said that his agency started using questionnaires in about the late 1970s. They became more extensive in the light of experience. He produced an example dated 28.2.90 to which I refer. Unfortunately he was unable to produce examples directed to long-tail syndicates in the late 70s/early 80s.
Mr. Kingsley in cross-examination, was taken through the reports and accounts of syndicate 694. He agreed that this was a syndicate with a substantial long-tail element on its books written since 1977. The syndicate increased its reserves in most years, even though previous years' reserves were believed to be accurate.
Mr. Kingsley again in cross-examination, was taken through the reports and accounts of syndicate 319/318. The 1982 year of account of syndicate 319 was left open because (according to the Underwriter's Report) of "a worsening of settlements on the years 1978 to 1980 in respect of asbestosis, pollution and general US casualty claims. This unexpected increase in settled and outstanding claims has been caused by considerable deterioration in a syndicate run-off written in 1978 as well as a small number of London market casualty excess loss contracts. Because of the difficulty surrounding the estimating of reserves from these long-tail claims the 1982 year of account will be left open, with an audit deficiency of 139%". Mr. Kingsley said that the reserves proved reasonably adequate in 1985, 1986 and 1987, before a subsequent deterioration in 1988 and 1989.
In his witness statement Mr. Kingsley said " I was chairman or director of four separate Lloyd's agencies, yet I can categorically state that I never saw the Murray Lawrence letter at that time. I did not in fact ever see the letter until the early 1990s when I was very surprised to read its contents..."
In his witness statement Mr. Kingsley set out a schedule of certain run-off contracts entered into by Mr. Outhwaite in 1981 and 1982. He said "I have researched 32 run-off contracts placed partly or wholly with Outhwaite syndicate 317/661 between 1977 and 1983 and have noted that 28 of these related to Lloyd's syndicates. In the case of 27, I have noted some connection between the reinsured syndicate and one or more of the individuals identified in the pleadings being allegedly party to fraudulent representations by Lloyd's." Mr. Kingsley was cross-examined by reference to a rebuttal schedule prepared by Lloyd's.
When asked 'what went wrong?', Mr. Kingsley said that run-off contracts were placed with inside knowledge and that the 1979 year of account should have been left open by syndicates affected by asbestos-related claims.

Mr. Charles Cavenagh-Mainwaring
In about 1976 Mr. Cavenagh-Mainwaring joined R.H.M. Outhwaite (Underwriting Agencies) Ltd as an assistant agency manager. Whilst with the Outhwaite Agency Mr. Cavenagh-Mainwaring became an underwriting member of Lloyd's. In 1978 Mr. Cavenagh-Mainwaring joined the Oakeley Vaughan members' agency. In 1982 he moved to C.T. Bowring (Underwriting Agencies) Ltd (a combined members' and managing agents) on the members' agency side. When Mr. Sedgwick Rough was brought in 1985 or 1986 Mr. Cavenagh-Mainwaring ceased to have any responsibility for dealing directly with prospective Names. In about early 1987 Mr. Cavenagh-Mainwaring left Bowrings and joined Hinton Hill. Thereafter he worked for a time for the Outhwaite Action Group.
A dispute between Mr. Cavenagh-Mainwaring and Murray Lawrence Members' Agency Ltd (formerly Bowring Members' Agency Ltd) was the subject of an arbitration. Mr. Cavenagh-Mainwaring claimed damages for breach of contract and/or duty by the Respondent Agent in relation to his participation on Gooda Walker syndicate 290 for the underwriting year of account 1989. In November 1995 Mr. Stephen Ruttle as sole arbitrator determined that Mr. Cavenagh-Mainwaring's claim failed. In Reasons for the Award the arbitrator said "I have no doubt that (Mr. Cavenagh-Mainwaring) took his own decisions about his portfolio and that he did not rely in anything other than a most general way on the views and judgments of others at the Agent".
A letter dated 3 June 1982 sent by C.T. Bowring (Underwriting Agencies) Ltd to Names for whom they acted as members' agents, made specific reference to asbestos-related risks. Mr. Cavenagh-Mainwaring said that he did not think he would have seen the letter at the time because the main administration was two floors above the floor on which he worked. Mr. Cavenagh-Mainwaring said that he did not see and was not aware of the Murray Lawrence letter of 18 March 1982.
When asked 'what went wrong or what was wrong'?, Mr. Cavenagh-Mainwaring said that in the late 70s/early 80s there should have been much more co-ordination of intelligence being passed down to the members' agents and new Names. Rota Committee Chairmen should have mentioned asbestos-related risks. 

Mr. John Donner
The Names served a notice complying with section 2(1) Civil Evidence Act 1995 and CPR 33.2 in respect of Mr. Donner's evidence. Mr. Donner's bodily health was identified as the reason why he was unable to attend to give evidence in person. This was confirmed by medical evidence. Due to the medical evidence tendered, Lloyd's did not apply to cross-examine Mr. Donner on his statement under CPR 33.4(1) or to exclude his evidence. Lloyd's served a notice under CPR 33.5 indicating its intention to attack Mr. Donner's credibility.
Lloyd's attacked the credibility of Mr. Donner by reference to a number of documents. These included a letter dated 10 January 1996 to Mr. Richard Rosenblatt which included the following - "...The evidence appears to indicate that most of the US fraud allegations and litigation are based on Donner evidence without, as far as I am aware, my express permission. This may be a cheap way of proceeding so far but it was bound to incur difficulties in the end, because you simply do not have the totality of evidence in my possession to give any fraud action the best chance of success. In order, therefore, to ease your position, I would be prepared to accept 50% of my fee in advance i.e. US$500,000 and, perhaps you would suggest the basis upon which an "exceedingly generous success fee" might be formulated."

Mr. Timothy Goodwin-Self
In the late 1970s Mr. Goodwin-Self joined PCW becoming a personal assistant to Mr. Peter Dixon. Mr. Goodwin-Self's job was to recruit direct Names for PCW. Mr. Goodwin-Self ran a sub-agency called Trewshire. He worked in PCW's fifth floor offices at 52 Lime Street.
Mr. Goodwin-Self said that in about May/June 1983 he saw documents being shredded. In his witness statement he said:-
"I found that the investment office was no longer functioning as such. Instead it had been filled up with crates and cardboard boxes and two or three of the girls who worked there were busy shredding paper from the boxes ...One of the girls...said "This has nothing to do with PCW. These are just Peter Green's personal documents." ...I discussed it with one or two people and eventually decided to leave PCW. I could think of no valid reason why papers belonging to the Chairman of Lloyd's should be brought to our PCW premises and our shredders should be used to have those papers destroyed. Dixon's secretary at the time was called Shirley Reynolds...She... said to me "They are just personal documents"."
When cross-examined Mr. Goodwin-Self confirmed that the investment department within the PCW offices was in the same room as that in which documents were shredded.

Mr. Alan Smallbone
Mr. Smallbone's witness statement was admitted in evidence (Lloyd's not having any cross-examination). Mr. Smallbone had considerable experience as an employee/director of Lloyd's brokers.

Mr. Michael Anstey
Mr. Anstey's witness statement was admitted in evidence (Lloyd's not having any cross-examination).
Mr. Anstey spent his business life in the London insurance market as an insurance broker. He said in his statement:-
"Until the emergence of the Lloyd's problems in the very late 1980s I was quite unaware of the problems surrounding the market in relation to its aggregate exposure to asbestosis, pollution and health risks, although I was aware of the existence of the Asbestos Working Party...I believe that there are many working Names in my position who only became aware of the problems when it was too late to take any corrective action."

Mr. Richard Hulse
Mr. Hulse's witness statement was admitted in evidence (Lloyd's not having any cross-examination). 
Mr. Hulse spent most of his working life in the Lloyd's market. Between 1980 and 1984 he was Executive Director of Robert Barrow Ltd., Lloyd's brokers. Between 1985 and 1986 he was Chairman of H. Pitman & Co Ltd., Lloyd's brokers. Between 1986 and 1988 he was a Director of K.C. Webb & Co Ltd., a Lloyd's members' agency. In his witness statement Mr. Hulse said:-
"Neither as a Name, nor as a sub-agent, was I made aware of the existence of the Neville Russell letter, nor the Murray Lawrence letter, even though I had close contact with David Barham, David Gilmour Roy, Stephen Merrett and Ian Posgate, who were underwriters I used when placing aviation risks."

Mr. Paul Mason
In September 1954 Mr. Mason joined the marine claims department of the Lloyd's broker Sedgwick Collins & Co Ltd. He was with Sedgwick until the end of 1965. He left Sedgwick to join Pitman and Deane at the end of 1965 where he stayed for a short time before joining Clarkson. Mr. Mason joined Edward Bates in 1973 but returned to Clarkson in 1981. In 1987 the merger with Bain Dawes took place. Mr. Mason said that in 1979 he was asked to join Lloyd's. He spoke to Mr. Philip Froude the Claims Manager of Janson Green. Mr. Mason said to Mr. Froude "I am thinking of joining Lloyd's, but I know about asbestosis and I am concerned about the stories of mounting losses. Do you think I should join?" According to Mr. Mason, Mr Froude replied "I wouldn't join if I were you".
Mr. Mason said that it seemed to him in both 1979 and 1984 that there must be a mass of claims arising from hazards such as asbestosis that had not been notified to the market in general, which would be covered by the type of General Liability Contracts with which he was familiar from his time at Sedgwick.

Mr. Derek Steel
Mr. Steel was called at a very late stage in the trial. On 16.6.2000 he sent a fax to Mr. Freeman of Grower Freeman & Goldberg which read:-
"...I am prompted to write to tell you that in the summer of 1984 I heard Murray Lawrence say that "Lloyd's was virtually bankrupt." ...I was a marine reinsurance broker... and... founded Steel Burill Jones Ltd. In 1984 I was elected a member of the Lloyd's Brokers Committee. In the summer of 1984 I attended a dinner given by the Lloyd's Brokers Committee for the Chairs of Lloyd's viz. Sir Peter Miller, Michael Cockell and Murrary Lawrence, held at Trinity House. The Chairman of the LBC was Robert Kevill... who sat opposite Sir Peter. I was opposite Michael Cockell... and a former colleague, John Garner... a non-marine broker specialising in North American business, opposite Murray Lawrence. I was startled suddenly to hear an angry Murray Lawrence saying "But you brokers don't seem to realise that Lloyd's is virtually bankrupt." There was sudden silence until Michael Cockell said "I can illustrate that. When I took up the pen, the carry-in from previous years... was £5 million. As we sit here tonight we have paid out £20 million and are running another £12 million outstanding." The dinner was a private occasion where by custom anything could be said in private and no notes were taken. It was the first intimation I had of the situation which subsequently brought Lloyd's to its knees. And in my view such knowledge is incompatible with the stance taken by Murray Lawrence and others that they shouldn't be held responsible for the way the losses for latent disease subsequently developed. The number of the reinsurances - and the relatively high cost of them - placed to lay-off the incremental growth in the run-off of the back years shows precisely that those underwriters seeking the reinsurances had to have good reason i.e. foreknowledge, of the development of latent disease claims. And in the case of Murray Lawrence he clearly had that apprehension in 1984."
The above fax was exhibited to a statement from Mr. Freeman dated 19 June which included the following in paragraph 7:-
"Mr. Steel told me that following the dinner given by the Lloyd's Brokers Committee... he was very concerned by what he had heard. He felt that something was very wrong and remembers that he decided to leave the Dick Hazell syndicate 190."
When called to give evidence, Mr. Steel said that the dinner was in November 1986 and not in the summer of 1984. He said he heard Mr. Lawrence say "You bloody brokers, Lloyd's is nearly bust." Mr. Steel was not elected a member of the LIBC until 1986. When he gave evidence Mr. Steel said that at the time of the dinner the Chairman of the LIBC was not Mr. Robert Kevill but Mr. Simon Arnold. Mr. Steel in the course of his evidence produced a copy of Mr. Freeman's statement with manuscript corrections/notes thereon. As to paragraph 7, Mr. Steel had added in manuscript "He was not on any other long-tail NM syndicates." Mr. Steel said in the course of his oral evidence that the second sentence of paragraph 7 ("He felt that something was very wrong and remembers that he decided to leave the Dick Hazell syndicate 190") was wrong. That sentence should have read "I had already left the Dick Hazell syndicate 190." Mr. Steel had resigned from syndicate 190 in 1984 (i.e. 1984 was his last year of underwriting). Mr. Steel increased his underwriting at Lloyd's in 1986 and again in 1988. Mr. Steel was put in touch with Mr. Freeman by Mr. Harvey White (see below).
When cross-examined Mr. Steel said that he did not know who Mr. Lawrence had been talking to prior to the outburst which he described.
Mr. Steel was on the committee of LIBC for the years 1986 to 1989 inclusive.
In view of the many changes in Mr. Steel's account it is difficult to place reliance on his evidence. The positioning at dinner which he describes suggests that if any such conversation took place, it occurred towards the end of Mr. Steel's time on the Committee. Such material as survives suggests that the senior members of LIBC sat near to the Chairs at such dinners. In 1986 Mr. Steel was a new member of the LIBC.

Mr. W.G. Brown
The statement of Mr. W.G. Brown was admitted in evidence as Mr. Brown lives in Australia.

Mr. Anthony Charles Sturge
Mr. Sturge left the employment of A.L. Sturge & Co in 1972. He formed Chatset in 1981 with Mr. John Rew to collate and publish comparative syndicate results. His full-time employment with Chatset started in 1989.
Mr. Sturge spoke at a conference in February 1985 entitled 'The Future of Lloyd's' on the subject 'Lloyd's - An Outside Member's View'. The conference papers were published in about March 1985.
Mr. Sturge was a member of the Open Years Panel.
Mr. Sturge struck me as a careful witness who provided a reasonably balanced account.
In the Chatset Lloyd's Syndicates Results 1978 (published in 1981) Mr. Sturge wrote "Asbestosis has been described as the largest ever insurance loss and will not only affect the non-marine market."
Mr. Sturge was cross-examined about his perception of the asbestos problem facing the market as at certain dates. He said that in late 1982 his perception was as follows. Asbestos-related claims were potentially a serious problem for some Lloyd's syndicates. Any members' agent who read the press, the reports and accounts and Chatset would be aware that the Lloyd's market was facing problems as result of exposure to asbestos payments. The impression he formed from the underwriters' reports was that it was a serious problem, but containable. It was not something that was going to hit Lloyd's as a whole in a major way and cause the kind of problems that were seen later on. He was, however, not privy to the detailed information that the AWP had.
Mr. Sturge said in his witness statement that it was not until 1992 that he felt there was enough data in the public domain which an external analyst or Name could properly use to assess the full damage and impact on the market of latent liability.
Mr. Sturge emphasised the importance of the Settlement Statistics which "came my way when we were compiling the 1994 run-offs". Table 2 shows "Non-Marine All Other US Business". This document "opened one's eyes to the way that the US liability account had built up over the years and how, if one projected those figures forward, even in the early 1980's it was clearly apparent that the US liability account was running at a serious loss."
As to Mr. Aaronson's Report, Mr. Sturge said that in his opinion it was wrong to compare the Lloyd's 1985 year with companies in 1987 - "it would seem to be entirely flawed because in the 85 underwriting year Lloyd's was driven by factors in calendar year 85."
As to "recruit to dilute" Mr. Sturge said that up to 1985 he did not believe there was any "recruit to dilute". He was less happy about what happened in 1986 and 1987. He felt the Council of Lloyd's should have put some check on the growth of capacity - "the wrong people were becoming members of Lloyd's, those who did not really have any real wealth".
When asked about charts prepared for the purposes of the Outhwaite trial, Mr. Sturge said what struck him was the steep rise between 1982 and 1983 - "if you had looked at them I think you would have scratched your head and wondered what was happening, particularly on those that had written an aggressive long-tail account." 
Mr. Sturge said that having been a member of the Open Years Panel, it did not appear that Lloyd's had ever attempted to assess the Lloyd's market's share of asbestos-related claims. Mr. Sturge added that with appropriate data it would be perfectly possible to calculate the exposure that Lloyd's/the London market might have to a particular type of risk.
Mr. Sturge produced Charts of Asbestos Liabilities at 31.12.94, to which I refer.
Mr. Sturge estimated that the cost to the Lloyd's market to date (paid and outstanding) of asbestos-related claims at $3.5 to 4 billion.

Mr. Dennis Fredjohn
Mr. Fredjohn, a distinguished industrialist, was a member of the Council of Lloyd's for the years 1983 and 1984, as one of the first external Names on the Council. Between 1986 and 1994 Mr. Fredjohn was a non-executive director of London Wall Holdings Plc (a Lloyd's Agency). Mr. Fredjohn joined the 1992 Outhwaite Names Association.
Mr. Fredjohn struck me as witness whose account was balanced and generally reliable.
Mr. Fredjohn said that the most important decision that a person makes when he/she joins Lloyd's is who he/she selects as members' agent.
Mr. Fredjohn said that in his opinion it was not the Council's job to try and second guess the work carried out by managing agents and auditors. The Council set the regulatory framework in which others operated.
Mr. Fredjohn said he did not have any special knowledge of asbestos or long-tail problems by reason of being a member of the Council of Lloyd's. He was unaware of the existence of the AWP during his time on the Council. He was also unaware of the state of knowledge of the size of claims lodged in the United States and of the rate at which claims were coming through. He did not remember any report being made as to the numbers or average cost of asbestos claims, while he was a member of Council or of any Lloyd's Committee. In his statement he said he did not know why the Council was not given the information in 1983 that was available to the Committee in 1982. He added that if he had known that information he would not have increased his underwriting as he did and would have avoided long-tail liabilities.
Mr. Fredjohn acted as a Chairman of Rota Committees for members joining Lloyd's when a member of the Council, and for about two years thereafter. He said he had a limited knowledge of long-tail liabilities affecting the market but, along with Sir Eddie Kulukundis, felt it important to emphasise to joining Names that syndicates and Names inherited liabilities for old years. He thought it was very (and increasingly) appropriate to mention long-tail liabilities such as latent diseases, but doubted whether working Names (who took most of the Rotas) were as conscientious. At some stage Mr. Merrett approached him to suggest that at the Rota Meetings he over emphasised the liabilities inherited from the past through RITC - Mr. Merrett "felt I was stressing too much the impact of the long term liabilities, and I said... to me it was one of the most important things... he accepted it."
Mr. Fredjohn was complimentary about certain persons against whom allegations of fraud are made in this case.
Mr. Fredjohn referred to the struggle between regulation and the retention of an entrepreneurial environment that was vital to the success of Lloyd's. 

Sir Eddie Kulukindis
Sir Eddie Kulukindis served as an external (elected) Name on the Council of Lloyd's between 1983 and 1989. He was an impressive witness.
He said that he first saw the Neville Russell letter the day he gave evidence. He believed that he had not seen the Murray Lawrence letter before, but could not be sure. He was a member of the Second Outhwaite Action Group. He had not seen the minutes of the Lloyd's Committee Meeting of 9.12.1982 before the day he gave evidence.
Sir Eddie did not recollect any discussion in Council of asbestosis, in the sense of the number of cases and the cost of those cases.
Sir Eddie said that with 100% hindsight Names should have been advised at Rota not to join the Outhwaite or Merrett syndicates.
Sir Eddie was a member of the Bird Working Party which in October 1984 produced 'The Report of the Long Term Review Working Party on Membership Requirements'. As to this Sir Eddie said (1) there was no question of making it easier for people to become a member of Lloyd's; (2) in a number of respects the recommendations tightened matters, in particular the proposal that members should be brought into line; (3) the proposal that premium income should be looked at on a gross rather than a net basis represented a further tightening of security; (4) there was no hint from anyone on the Committee that it was necessary to recruit new Names in order to meet the losses of the past; (5) the recommendations of the Committee were not aimed at making it easier for people to join Lloyd's.
Sir Eddie was also a member of the Membership Committee. He said that he was satisfied that any Brochure with which he was concerned was accurate and that considerable care was taken in this connection.
Sir Eddie said that asbestosis was not generally regarded in the 1980s as a problem that was going to destroy the Lloyd's market.
Sir Eddie said that if he had been aware in late 1984 of what Mr. Kellett was saying to the Inland Revenue on behalf of Lloyd's, this would have affected his own personal underwriting.

Mrs. Sally Ridley-Day OBE
Mrs. Ridley-Day is married to Mr. John Ridley-Day (see below). Mrs. Ridley-Day was not a member of Lloyd's. Her husband was a Name who accepted the R&R Settlement.
Mrs. Ridley-Day produced typed up notes of numerous telephone conversations that she had with Mr. Osbrey.
Mrs. Ridley-Day was recalled to give evidence. Profoundly unsatisfactory matters emerged as a result of further cross-examination on day 27. When Mrs. Ridley-Day first gave evidence she did not mention that on about 16 February 2000 she collected a box of Mr. Osbrey's papers from Dr. Harvey White. According to Mrs. Ridley-Day, Mr. Freeman of Grower Freeman and Goldberg asked her to look through the documents to see "If there was anything useful". None of this material was disclosed to Lloyd's until day 27. In fact the box contained a number of documents highly material to the account that Mrs. Mackenzie-Smith and Mrs. Ridley-Day and other witnesses gave of conversations with Mr. Osbrey.
Further, Mrs. Ridley-Day said that in about the latter part of 1999 a tape, purporting to be a tape of recordings on Mr. Osbrey's answerphone, arrived by post in a brown envelope addressed to her. She said that she came across the tape in the early part of this year before she received the documents from Dr. Harvey White. Freshfields were notified of the existence of the tape by letter dated 10 February 2000.

Mr. Julian Lloyd
Mr. Lloyd's witness statement was admitted in evidence (Lloyd's not having any cross-examination). Mr. Lloyd's statement contained an account of conversations with Mr. Osbrey.

Earl Alexander of Tunis
The witness statement of Earl Alexander of Tunis was admitted in evidence (Lloyd's not having any cross-examination). This statement also contained an account of conversations with Mr. Osbrey.

Mr. John Ridley-Day
Mr. Ridley-Day's witness statement was admitted in evidence (Lloyd's not having any cross-examination). Mr. Ridley-Day's statement contained an account of conversations with and other matters relating to Mr. Osbrey.

Mr. Charles Purle Q.C.
Mr. Purle's witness statement dealt with his knowledge of Mr. John Osbrey. Before Mr. Osbrey's death, Mr. Purle was acting for Mr. Osbrey in connection with litigation against Mr. Osbrey's Lloyd's members' agents.

Mr. Harvey White
Mr. Harvey White is a surgeon specialising in general surgery and oncology. Mr. Harvey White and Mr. Osbrey became friends when they attended school together and remained friends 
throughout school and university and their adult life. In addition Mr. Harvey White treated Mr. Osbrey in a professional capacity over the years until his death.
Mr. Harvey White gave evidence of the circumstances in which he came into possession of some of Mr. Osbrey's papers.
Mr. Harvey White was never a member of Lloyd's. He gave his account of conversations from time to time with Mr. Osbrey on the subject of Lloyd's.
It should be recorded that Mr. Harvey White showed great friendship to Mr. Osbrey throughout his life and paid for his funeral.

Mr. K. V. Louw
Mr. Louw has had experience within the reinsurance market both in underwriting (Mercantile & General Reinsurance Co Ltd between October 1965 and September 1972) and as a broker. He is a Fellow of the Chartered Insurance Institute. He has edited the most recent editions of "The Law and Practice of Reinsurance" by C.E. Golding. Mr. Louw is the managing director of Reinsurance Evaluations Ltd, a reinsurance consultancy specialising in inspections and audits of records, management of discontinued operations, litigation support and executive advice to the reinsurance market. He was called not as an expert witness but as a "technical" witness.
Before this case Mr. Louw had not seen the market reports and attorneys' reports in respect of US asbestos losses.
Mr. Louw was cross-examined by reference to the accounts of Mercantile & General Reinsurance Co Ltd. He agreed that the reserves in the 1980s were inadequate to meet the weight of asbestos-related claims and that it was not until the 1982 report published in 1983 that there was any specific mention of asbestos. He accepted that the Mercantile added to its reserves year by year in order to meet asbestos claims, but those reserves proved inadequate. The size of the reserves for asbestos and pollution claims in 1995 was greater than the entire reserves for the whole of the non-proportional account in some of the 1980s.
Mr. Louw prepared an Appendix which sets out a chronology of various reports, addresses the issue of what was known from the attorneys' reports and AWP meetings, calculates the asbestos liabilities indicated by the reports and shows how these were or were not reflected in the RITC figures in the Lloyd's Global Accounts. Mr. Louw concluded his report as follows:-
"The documents that I have seen do show that the market was creating asbestos reserves and reporting to Lloyd's. However, the increase in reserves bears no comparison with the size of the known liabilities projected over a period five to ten years by Mr. Nelson. From the beginning of 1983 onwards the loss projection for asbestos bodily injury losses was close to the $10 billion figure. For most years the Lloyd's market's share of the known and projected cost of asbestos bodily injury losses exceeded the total RITC for US Dollar General Liability business".
Mr. Louw based his calculations upon certain "conservative assumptions" as follows:-
(A) That the London market's share of liability for US asbestos losses on an exposure basis was 40%.
(B) That Lloyd's share of the London market's liability for US asbestos losses was some two thirds of 40% (say 25% overall).
(C) That although the Lloyd's liabilities should be shown as being net of reinsurance protections, no diminution in the figures was made for two reasons:
(i) "It is doubtful that the percentage (of reinsurance) placed in the London market outside of Lloyd's was very great."
(ii) The calculations were based upon the Lloyd's share of direct US business. They took no account of reinsurance and retrocessions from US carriers which formed a significant part of the Lloyd's exposure to asbestos losses.
In cross-examination Mr. Louw accepted that the RITC figures in the Lloyd's Global Accounts used in his calculations:-
(1) included reserves for inwards claims on direct policies and reserves for claims on reinsurance policies;
(2) were net of reinsurance in the sense that they were net of credits taken in respect of reinsurance recoveries;
(3) were net of credits taken in respect of time and distance policies;
(4) were net of discounting (if any) in RITC calculations;
(5) were net of credit (if any) taken in respect of rollovers (if any). 
Lloyd's produced a schedule of Mr. Louw's calculations. In cross-examination Mr. Louw accepted that revisions should be made to his figures for the number of claims in 1985 and 1987.
Mr. Louw's percentage approach was challenged in cross-examination. It did not take account of the widening number of defendants in asbestos-related claims. Nor did it take account of the Johns Manville settlement.
Despite certain criticisms that can be made of Mr. Louw's approach and calculations, in fairness to him I should record that in my opinion he was doing his best to assist the court drawing on the limited information available to him.

Witnesses Called by Lloyd's 
Each of the witnesses called by Lloyd's from among the 33 persons listed in chapter 7, emphatically denied the allegations of fraud/fraudulent misrepresentation made by the Names.

Sir Peter Miller
Sir Peter Miller joined Thos R. Miller & Sons full time from 1954. T.R.M. & S was a Lloyd's broking firm concerned mainly with marine business. In the 1960s with others Sir Peter founded a members' underwriting agency business (Thos R. Miller & Sons Underwriting Agents). He was never particularly concerned with the day to day work of this members' agent. Thus Sir Peter's background was as a marine broker.
Sir Peter was Chairman of the Committee of Lloyd's Insurance Brokers Association for 1976/1977. He was first elected as a member of the Committee of Lloyd's in 1977 and, with the exception of 1981, remained on the Committee until 1989. He was a member of the Council of Lloyd's from 1983 until 1989, during which time he served as Chairman of Lloyd's between 1984 and 1987.
Sir Peter was an articulate witness.
In his main witness statement Sir Peter addressed the following topics:-
(a) a description of relevant Lloyd's bodies and Lloyd's market bodies; (b) the key issues during his Chairmanship of Lloyd's; (c) the principal regulatory developments during the Relevant Period; (d) his personal knowledge of the asbestos issue during the Relevant Period; (e) Lloyd's Annual Results; (f) the Lloyd's Brochures; (g) Rota interviews; (h) capital expansion and the increase in membership; (i) Lloyd's dealings with the Inland Revenue; (j) Toplis & Harding Inc.; (k) his personal participation as a Name.
As to the role of the Council, Sir Peter said that it was not the role of the Council, nor the role of the Committee before it, to get involved in the business decisions of the syndicates and the market, whether in terms of the underwriting of risks or the settlement of claims.
As to the asbestos issue during the Relevant Period, Sir Peter's background was in marine insurance. Although he sat on the board of T.R.M. & S' non-marine broking subsidiary, it was not involved in the processing of asbestos-related claims on behalf of assureds or reassureds. T.R.M. & S did not own or have any interest in a Lloyd's managing agency and Sir Peter had little involvement in the day to day work of the Lloyd's members' agency. He had no recollection of ever seeing any attorneys' reports dealing with asbestos-related claims at any time relevant to this action. Sir Peter referred to his various statements in the Global Reports and Accounts and said that his concern was about losses across the non-marine general liability account as a whole.
Sir Peter said that his knowledge of asbestos has never been detailed, and it is not so even today. (Surprisingly) he said that he was not aware of the fact that serious conditions, on the whole, do not arise until 20 years or more after initial exposure.
Sir Peter accepted that from the time when syndicates received and acted upon the Murray Lawrence letter, they could have been asked what reserves had been identified for asbestos-related liabilities in closed and open years.
Sir Peter said that during the parliamentary procedures in 1982 there was no reason to mention asbestosis or latent disease to the House of Commons.
Sir Peter was asked "Did you during your first year as Chairman ask for figures about asbestosis claims?" He replied "...I observed what was said about them, which was in increasingly significant tones, but I was not aware of any figures being available to me of market participation in asbestos claims. It was too early for that to have emerged."
In the course of his evidence Sir Peter drew a distinction between problems which were considered to be superable and those which were considered to be insuperable. 
Sir Peter said that three factors in combination led Lloyd's to the very difficult economic position in which it found itself in the 1990s:- (i) the general liability account; (ii) losses arising from catastrophes; and (iii) intense competition driving down the rates in the marine field to unrealistic levels. 
At the conclusion of his cross-examination Sir Peter said "We turned our backs on nothing; we did our best. We may have made mistakes; no doubt we did, everybody does, but the regulatory failures were not what led to the asbestos problem. The asbestos problem, by itself, did not threaten the solvency of Lloyd's. ...It was the combination of that and other things that led to the economic difficulties of the 90s."

Mr. Murray Lawrence
Mr. Lawrence took over as active underwriter on composite syndicate 360 on 1 January 1970. Mr. Lawrence's day to day work with syndicate 854 consisted of contract property reinsurance, excess of loss and pro rata insurance of insurance companies worldwide (the greater part being US insurance companies). 
On 1 January 1980, syndicate 360 was split into four individual syndicates. The non-marine syndicates, 360 and 854 joined together to form syndicate 362. Mr. Lawrence was the active underwriter of syndicate 362. After he became Chairman of the Computer Leasing Working Party and joined the Committee of Lloyd's in 1979 his involvement in the day-to-day affairs of syndicate 362 diminished and he gradually ceded control of operations to his deputy, Mr. Richard Keeling.
C. T. Bowring divested itself of the managing agency C.T. Bowring Underwriting Agencies Ltd on 1 January 1985. Mr. Lawrence set up Murray Lawrence and Partners which took over the managing agency functions (i.e. the underwriting) of C.T. Bowring Agencies. He was senior partner of Murray Lawrence and Partners, head of the agency and Chairman of the Board having given up his role as active underwriter on about 1 July 1984. Murray Lawrence and Partners was incorporated in 1989 to become Murray Lawrence and Partners Ltd. At the same time, two other companies were formed: a holding company, Murray Lawrence Holdings Ltd, and Murray Lawrence Members' Agency Ltd which purchased the members' agency from C.T. Bowring in 1988 or 1989. Mr. Lawrence was Chairman of all three Boards.
Mr. Lawrence was Chairman of LUNMA in 1978.
Mr. Lawrence became a member of the Committee of Lloyd's in 1979 and except for 1983 served on the Committee until 1991. He became a member of the Council of Lloyd's on 1 January 1984 and remained a member of the Council until 1991. He was Deputy Chairman of Lloyd's in 1982 and from 1984 to 1987. In 1988 he became Chairman of Lloyd's, retiring on 31 December 1990.
Mr. Lawrence joined Lloyd's as an underwriting member for the 1974 year of account. He remained a Name until 31 December 1998.
I am satisfied that Mr. Lawrence's evidence as to the distribution of the Murray Lawrence letter is accurate. I find that he did not take any steps to restrict circulation of the letter.
In his main witness statement Mr. Lawrence addressed the following topics:- 
(a) the market associations in the Lloyd's market; (b) the Society of Lloyd's bodies; (c) the Computer Leasing Working Party; (d) the Asbestos Working Party; (e) the Lloyd's Brochure; (f) Lloyd's annual underwriting results; (g) the reinsurance to close process; (h) to (p) the periods up to the closure of the 1977 to 1985 years of account; (q) the recruitment of Names into the Lloyd's market; (r) the purchase by syndicate 362 of a run-off policy; (s) his personal underwriting.
Mr. Lawrence dealt with the meeting with the panel auditors on 10 November 1981, the Audit Committee, the Special Meeting of the Committee of Lloyd's on 7 December 1981, the meeting of panel auditors on 15 January 1982, the note from Mr. Ken Randall dated 22 February 1982, the Neville Russell letter dated 24 February 1982, the Audit Committee meeting on 2 March 1982, the panel auditors' meeting on 9 March 1982, the memorandum by Mr. Nelson on 12 March 1982, the memorandum to O Group dated 15 March 1982, the letter from Mr. Colin Murray dated 15 March 1982 ( the Bannockburn letter), the meeting of the Committee on 17 March 1982 and the two market letters dated 18 March 1982. "The first letter was sent out in my name on behalf of the Committee to all underwriting agents (which meant all managing agents, members' agents and combined agents), active underwriters and panel auditors. The second letter was sent by Mr. Randall to all panel auditors."
Syndicate 362 took out a rollover policy in about 1970 or 1971.
At the end of 1968 Mr. Lawrence was appointed underwriter designate of syndicate 360. He was horrified to learn that the syndicate was under-reserved and would have to increase its reserves considerably (which the syndicate did at 31 December 1968). As a consequence he decided to take the syndicate totally out of casualty business. "We wrote no more long-tail business (direct or reinsurance) during the 1970s and early 1980s (with the exception of certain types of US long-tail business which was not exposed to asbestos, such as medical malpractice and contingency clash business)". 
In 1982, syndicate 362 placed an unlimited liability run-off policy. Two thirds of the policy were placed with Mr. Outhwaite's syndicate and one third was placed with Mr. Meacock's syndicate. Syndicate 362 paid a premium of US$2 million for the policy with an excess of US$55 million. The policy was in respect of losses arising from 1 January 1982 on the 1978 and all prior years of account. 
On 15 April 1982 the syndicate purchased a further policy from Munich Re which provided US$10 million cover in excess of US$31.6 million for 1978 and prior years of account, at a premium of US$4 million. In 1984 reinsurance was purchased by Mr. Keeling to cover the gap of some US$13.4 million between the syndicate's reserves and the Munich Re reinsurance and the Outhwaite/Meacock run-off. This further cover cost US$4 million for US$13.4 million of cover. At around this time, the cover for the layer between US$31.6 and US$42 million was renegotiated and novated to NERCO. 
Mr. Lawrence said that the Council, as with the Committee, did not seek to interfere in the day to day decisions taken by the entities operating in the Lloyd's market.
Mr. Lawrence favoured the division of the non-marine "All Other" category to try to reflect the different settlement patterns (i.e. the different lengths of "tail") of the business within it to produce more consistent statistics. He set out in his witness statement the steps taken to achieve this goal. Mr. Lawrence said that he knew Mr. Bradley but had no recollection of any conversation in 1979 (when Mr. Bradley allegedly reported to Mr. Murray Lawrence a conversation he had had with Mr. Tom Hitchcock of Citibank).
Mr. Lawrence explained the history of the "white papers".
Mr. Lawrence disputed Mr. Osbrey's allegations.
As to reserving for asbestos-related claims Mr. Lawrence said that with the benefit of hindsight "We can look back and say that reserves that we set up at any moment in time proved generally insufficient, but...at the time the reserves...were set up... conscientiously with every effort to see that they were fair, and reinsurance to close...only took place if the underwriter, the agent and the auditor were happy (that the reserves were fair)". Mr. Lawrence added "Just as (we) thought we had a hold on it some new wave of problems came up, and proved all the previous ways in which we looked at it insufficient...we got overtaken by events in future years, in ways which we couldn't have foreseen".
Mr. Lawrence said that asbestos on its own was never a threat to the solvency of Lloyd's. Late in the 1980s and at the beginning of the 1990s the coming together of (i) the asbestos problems (ii) the other long-tail problems including pollution (iii) the effects of the appalling number and severity of the catastrophe losses, cumulatively threatened the solvency of Lloyd's.
Mr. Lawrence did not believe that the Committee was in a position to comment on how the market was reserved unless a mini R&R had been taken on by the Committee, and that was totally impractical.

Sir David Rowland
Sir David Rowland was Chairman of Lloyd's from 1993 to 1997, and a member of the Council of Lloyd's from 1987 to 1990 and 1993 to 1997.
Sir David was first employed in 1956 by a firm of insurance brokers, Matthews Wrightson. Within this broking company, Sir David undertook training as a marine broker between 1956 and 1958, followed by three years experience in UK non-marine insurance, and then another three years specialising in credit and bond insurance. At the end of 1964, he was appointed to the Board of Matthews Wrightson. After joining the Board, he led the UK non-marine department in London. Increasingly he concentrated on the management of the company, its expansion, the acquisition of other businesses and, in particular, upon developing overseas business opportunities. A large part of his time concerned business outside the Lloyd's market. He was made Managing Director of the company around the end of the 1960s.
At about the end of the 1960s Sir David was appointed to the Board of the parent company of Matthews Wrightson. There then followed a corporate re-structuring of the Matthews Wrightson Group, following the acquisition of Bray Gibb (a firm of brokers) in 1970, the flotation of Matthews Wrightson on the Stock Exchange, and the subsequent merger with Stewart Smith & Co (another broking firm with a subsidiary underwriting agency) in 1972. This resulted in the Group being renamed Stewart Wrightson, with a parent holding company called Stewart Wrightson Holdings Plc. From about the time of this re-structuring, Sir David became the (joint) Chief Executive of Stewart Wrightson, joining the Board of the parent company. Subsequently he also joined the Board of the newly created intermediate parent company, which was called Matthews Wrightson Underwriting Ltd. Sir David emphasised that non-executive directors were introduced onto the Board of the intermediate parent company (including Sir Bernard Cohen who Sir David described as a representative of the Names). Below Matthews Wrightson Underwriting Ltd there were a number of companies dealing with the affairs of Lloyd's members and syndicate management. The principal companies were: (a) Pulbrook Underwriting Management Ltd, the managing agency for Pulbrook syndicates (including non-marine syndicate 90 and marine syndicate 334, as well as a motor and an aviation syndicate); and (b) Matthews Wrightson Pulbrook Ltd, the members' agency (which later changed its name to Stewart Wrightson Members' Agency in April 1985). The managing agency and the members' agency had been separated in about 1979 (at the same time that Matthews Wrightson Underwriting Ltd was created). Sir David was not on the Board of either of these subsidiary companies, except for a year or so in about 1978/1979, when he was on the Board of Matthews Wrightson Pulbrook Ltd. Syndicate 90's 1982 year was left open; syndicate 334's 1985 year was left open.
In 1980 Sir David was appointed Chairman of the overall parent company Stewart Wrightson Holdings Plc. He continued in that position until its acquisition by Willis Faber in 1987. When that acquisition took place, he joined the Board of Willis Faber, as a Deputy Chairman. In March 1988, he left Willis Faber to become Chief Executive of the Sedgwick Group Plc. He became the Chairman of Sedgwicks in 1989. He held this position until December 1992, when he became Chairman of Lloyd's.
The underwriting business within the Stewart Wrightson Group was only a small part of the Group's overall business activities. To comply with the divestment requirements imposed by Lloyd's, the managing agency, Pulbrook, was sold and transferred in January 1985 to Creechurch Syndicate Managers Ltd, a wholly owned subsidiary of Merrett Holdings Plc.
Sir David was asked to lead the Task Force investigating the future capital structure of Lloyd's, which was set-up at the end of 1990, and which produced a report entitled "Lloyd's: A Route Forward" in January 1992.
Sir David was a highly articulate witness.
In his first witness statement Sir David addressed the following:- 
(a) personal background; (b) response to the allegations; (c) specific allegations against Lloyd's; (d) allegations against Pulbrook syndicate 90; and (e) personal underwriting.
As to (d), syndicate 90 obtained cover of $13.5m (excess of $17.5m), for its 1974 and prior years, in December 1980 with the New English Reinsurance Company; the syndicate then obtained 70% unlimited cover (excess of $26.9m) with Outhwaite/Meacock in February 1982 for its 1974 and prior years. Thereafter the syndicate obtained slices of top-up cover for the 30% gap on the 1974 and prior years. Syndicate 334 obtained cover with First State Insurance Company in May 1981 in respect of its 1975 and prior years, covering US$8m excess of US$4m. The syndicate then obtained unlimited cover with Merrett 418/417 (excess of $12m) for its 1975 and prior years in September 1981. The outcome of the Outhwaite/Meacock run-off contracts is shown in Table 3 below. The Merrett run-off contract was avoided.
In his third witness statement Sir David addressed three further topics:- (f) E&O cover at Lloyd's; (g) training for underwriters and underwriting agents; and (h) developments in relation to the capital structure.
As to asbestos-related claims, Sir David said that there were widely differing views about the eventual outcome and that this was demonstrated by the fact there was an active market in writing run-off policies (Outhwaite, Merrett and Meacock).
When asked about his views in the early 1980s about the availability of the market in run-off contracts, Sir David said "Outhwaite (and Merrett)...were substantial market figures. They had very considerable followings and they took views which were not necessarily typical of the rest of the market and they had considerable charismatic impact on the market. ...I was delighted and much relieved (that these protections were available and) pleased that people were taking different views about the development of asbestos. ...There were large numbers of contrary views, and that people of that influence were prepared to put their money where their feelings lay seemed to me very significant."
In the Task Force Report, January 1992 reference was made to uncertainty as to pollution claims ("The greatest uncertainties surround the third area of latent liability claims, environmental pollution... in testimony to the US Congress Sub-Committee on Policy Research and Insurance, Amy S. Bouska of Tillinghast estimated the range of possible outcomes to lie between $40 billion and $1,000 billion. Clearly costs of this magnitude are far beyond the resources of the insurance industry... Assessing the range of Lloyd's possible exposure to pollution claims is subject to huge uncertainties. Should court decisions go against the industry as a whole, Lloyd's needs to have only a modest share of the problem for it to face very serious losses..."). Sir David cited pollution as an example where "the forebodings about the worst case scenario have not been borne out."
As to E&O cover, Sir David said that this covered 12 months at a time and was on a "claims made basis". It was possible that external Names were underwriting the E&O insurance of their own agent. "One of the very big problems (was) the recycling of the risk around the very people (the Names) who were involved in seeking to recover (in the Lloyd's litigation) from their agents." Thus E&O cover was provided within the very market it was intended to protect. The same was true for personal stop-loss. "It was this whole element of recycling and double counting which caused a great deal of (the) problems."
Sir David accepted that competence in areas of the Lloyd's market was seriously lacking in the 1980s. "The level of ability at Lloyd's (was not, during the Relevant Period) at the level I would wish, looking backwards." Sir David added that there was a great deal of variability in the quality of members' agents.
When asked "Does it cause you anxiety that it was not until sometime in or after 1987 that reference to the possibility of being stuck on an open year was introduced into the Rota verification procedures?" Sir David replied "There is much in that period which, looking backwards, I would like to (have seen) happen earlier."

Mr. Alan Lord
Between 1 March 1986 and 30 June 1992 Mr. Lord was Chief Executive of Lloyd's and the nominated Deputy Chairman. Prior to March 1986 Mr. Lord had a distinguished career with the Inland Revenue, the Treasury, the Department of Trade and Industry, Dunlop Holdings Plc and as a member of the Court of the Bank of England.
No allegation of fraud is made against Mr. Lord.
Mr. Lord was an impressive witness.
In his witness statement Mr. Lord addressed the following topics:-
(a) the duties and functions of the Chief Executive, Chairman and Deputy Chairmen; (b) the Council of Lloyd's and the Committee of Lloyd's; (c) principal issues facing Lloyd's; (d) knowledge of asbestos; (e) the Donner Inquiry; (f) Global Reports & Accounts; (g) recruitment and expansion; (h) Rota Committee meetings; (i) Toplis & Harding Inc; (j) fraud allegations.
Mr. Lord said that during his term as Chief Executive, his areas of responsibility fell into five groups, the second of which was responsibility for overseeing the establishment and maintenance of the self-regulatory regime at Lloyd's. "In this respect, I was particularly concerned with the interests of non-working Names so far as these were consistent with the successful operation of the Lloyd's insurance market."
As to Council or Committee debate, Mr. Lord said that he could not recall any Council or Committee member seeking to stifle or suppress discussion of any issue either prior to, or at, a Council or Committee meeting.
Mr. Lord referred to the many and varied issues being dealt with by the Chairs, the Council and the Committee. He did not recall asbestos being a significant topic during the period 1 March 1986 to 31 December 1988. It was merely one of a number of long-tail liabilities like pollution, and problems like US tort law reform, which were of concern to the market.
As to the fraud allegations, Mr. Lord said that at no time was he aware of, nor did he have any reason to believe that there was, any dishonest activity on the part of any of his Council and Committee colleagues. He believed his fellow Council and Committee members acted honestly and approached their responsibilities in the same way as he did. If he had been aware of any dishonest activities he would certainly have done something about them.
Mr. Lord defined a catastrophe as something with a cost of at least $1 billion. He said that half the insurance catastrophes in the twentieth century occurred in the years 1987 to 1990 - windstorms in north Europe, Piper Alpha, Exxon Valdez, various hurricanes etc.
As to recruitment, Mr. Lord said that he was not conscious of a recruitment drive. On average there were over three thousand applications for membership each year. There was a queue and the limiting factor was the availability of places on syndicates.
Mr. Lord accepted that there was a tension between addressing liabilities with a very long-tail and the structure of a 12 month venture under which it was hoped to draw a final line at the end of three years. "The one thing that you can guarantee about reinsurance to close is that it will not be right, but it must be right to the best of the underwriter's ability. When you start to find that you have liabilities which are 30 years old, which may... have been imposed on you by a foreign legal system which extends cover beyond the point which it was intended to cover...then it is very difficult to accommodate that kind of business within an annual venture."
Mr. Lord said that one sees now with hindsight that sections of the market were seriously under-reserved, but there was no sense of that at the time. As to reserving for asbestos-related claims, Mr Lord said that in the Lloyd's context the question is, are the syndicates with exposure to asbestosis aware of the situation and are they taking steps to deal with it properly? He added that in a Lloyd's context one would say to individual underwriters and auditors "Are you sure in the light of the available evidence that you are properly reserved, because its your business not mine." In his view that was what Mr. Murray Lawrence did.
Mr. Lord said that there is no doubt that information could have been assembled in an aggregate form. "One would then have had...the ability to say to the underwriters, 'Are you aware of this? Are you clear that in your reserving you have taken full account of the situation which this reflects?'. My problem is this: that if the underwriter had said, 'Yes I am, and I have done my triangulations with this in mind, and to the best of my ability my reinsurance to close reflects all this and my auditors have taken no exception to anything that I have done', then I think that in the Lloyd's system at that point one comes to an end." Mr. Lord added that the General Review Department would not have had the technical insurance expertise to re-work an underwriter's reinsurance to close. "One could only have done that by putting in a team of competing underwriters...to go through the numbers. That actually is what qualified Lloyd's auditors are supposed to do."
Mr. Lord pointed out that with about four hundred syndicates, to some extent in competition with each other, commercial information was particularly sensitive.
As to PCW, Mr. Lord said " For eight months we dealt with this matter with the greatest possible care" (with the assistance of Mr. Nigel Holland and Mr. Charles Skey) "and two years later it became quite clear that we got it wrong."
When asked "The one thing that we are looking at is whether people in senior positions with knowledge of the market knew (what you didn't)... that the market was under-reserved for asbestosis. Its as simple as that, isn't it?", Mr. Lord replied "Yes it is. It comes down to a question of whether the Globals...were written in good faith. Its my belief that they were".

Mr. Colin Murray
Mr. Murray was appointed active underwriter of non-marine syndicate 510/511 in 1974 and remained underwriter until 1985. He succeeded Mr. Kiln as Chairman of R.J. Kiln & Co Ltd in 1985 and remained Chairman until 1995. He was a member of the Committee and Council of Lloyd's from 1983 to 1986 and from 1989 to 1992. He was Deputy Chairman of Lloyd's from 1989 to 1990. Mr. Murray was elected to the Committee of LUNMA in about 1979 and resigned in 1984.
A general description of the book of business written by syndicate 510/511 is set out in the Merrett judgment.
Mr. Murray was a highly professional and skilful underwriter and I was assisted by his evidence.
In his witness statement Mr. Murray addressed the following topics:-
(a) background to R.J. Kiln & Co Ltd and the Kiln syndicates; (b) the Lloyd's market - general observations; (c) market bodies; (d) the asbestos problem; (e) reserving and reinsurance to close; (f) closure of the 1979 year of account/Murray Lawrence letter; (g) run-off reinsurance; (h) the Council and Committee of Lloyd's; (i) the Members' Solvency and Security Committee; (j) recruitment/capacity; (k) the Donner inquiry; (l) his personal underwriting.
As to run-off insurance, Mr. Murray said that in the early 1980s Mr. Winchester approached him and asked him if he wanted to purchase a run-off policy from Mr. Outhwaite in respect of syndicate 510/511. He received a quotation from Mr. Outhwaite for unlimited cover excess of US$7.5 million at a net premium of US$850,000. The policy was to be effective from 1 January 1982. The offer was not accepted. 
Mr. Murray said that if he had felt that the situation would ultimately be as serious as it turned out to be, he would have behaved differently in relation to the purchase of reinsurance. He added that the insurance industry was as slow or slower than Lloyd's in coming to terms with the ultimate cost of asbestos-related claims. "We were part of the industry, the industry was slow, we were slower than we should have been, and unfortunately our slowness contributed to losses made by many Names."
In his Chairman's Report dated 3 May 1995 Mr. Murray wrote:-
"Syndicate 510 is certainly one of the few if not the only syndicate that wrote a general Non-Marine account in the 1960s and that does not owe its survival to a reinsurance policy purchased from the Outhwaite syndicate or from one of the very few markets that offered this cover. Our survival is due to the fact that we have always attempted to keep our acceptance of liability business in the United States to a low percentage of our overall account and because our total group capacity has grown from approximately £1 million in 1963 to approximately £500 million today."
Mr. Murray accepted that with the benefit of hindsight he under-reserved in 1981 and 1982, but said that 510/511 was over-reserved at the time of R&R. Mr. Murray said that Mr. Kiln in his booklet about the first 20 years at R.J. Kiln stated that "I did not get asbestos right, I did not realise how damaging it would be". 
As to information to Names, Mr. Murray said he was keen to ensure that Names on the Kiln syndicate were kept informed of the opportunities and problems of the business, including the developing asbestos problem. He did this in two main ways. The first was in his reports (as underwriter) which accompanied the syndicate's annual accounts. The second way in which Names were kept informed was through annual meetings of the Names.
Mr. Murray wrote the "Bannockburn letter" (see chapter 19 below).
Mr. Murray said that he considered that the Conning Report of September 1982 (see Appendix 3) was particularly influential. I attach particular importance to this evidence. 
Mr. Murray wrote to Mr. Outhwaite in June 1985. "I informed him that I thought that the acceptance of such aggregate liabilities was a matter of "great materiality" and that his managing agent should have advised Names and members' agents before adopting such an unconventional and hazardous underwriting policy. I said that "the effect of writing a run-off stop loss is that the burdens of the many are carried by the few." I gave notice of the cancellation of our sub-agency agreement and the withdrawal of all our Names from the syndicate with effect from 31 December 1985."
As to asbestos, Mr. Murray said that he gradually became aware that there was "a tiger in the undergrowth". Mr. Murray accepted that there must have been a time or period when asbestosis began to contribute to the threat to the solvency of Lloyd's. He added that if it was suggested to the ruling body, or if the ruling body of its own recognised, that there was a threat to the solvency of Lloyd's, then the ruling body would have taken an interest. Mr. Murray said that between 1988 and 1992 it may have been appreciated that asbestos might affect Lloyd's solvency.
Mr. Murray said the "asbestos and pollution experience...has...communicated to me that the annual venture with the reinsurance to close is almost impossible to apply to long-tail business...this is why I really believe the future of the market is for corporate capital." 
When giving evidence Mr. Murray said "My contemporary view...was that although one did one's best at the time to fix the figure (to reinsure to close) which without discounting would pay all claims, the assuming Names did have the cushion of the investment income and the capital gain. Therefore, if one had got it wrong and one needed to increase the figure at the end of the following year, then the Names would (probably) not be financially damaged by having assumed (the) reinsurance to close...by not discounting there was an extra cushion."
As to reinsurance to close, Mr. Murray said that the culture at Lloyd's at the end of the 1970s and the beginning of the 1980s was to close a year by reinsuring it into the next year of account wherever possible, however expensive that might be for Names on a closing year. By the late 1980s, the incidence of open years had increased so much that the concept of leaving a syndicate open was regarded by some underwriters as preferable to closure. In some cases it allowed very severe losses to be collected from the Names over a longer period of time.
As to the Lloyd's market, Mr. Murray said that in his opinion it was no part of Lloyd's function to usurp the role of the agents, working in conjunction with their auditors, in relation to the closure of syndicates' years of account, nor did the Committee/Council of Lloyd's have the information, time or resources to interfere in this area of the agents' businesses. Mr. Murray said that if he had been told that when he joined the Council of Lloyd's he was expected to make an assessment about Lloyd's exposure to asbestosis or pollution or anything else, under no circumstances would he have stood for the Council because he would have known that that was an impossible brief.

Mr. Bryan Kellett
In 1973 Mr. Kellett set up his own non-marine syndicate 993/994. B. P. D. Kellett & Co became sole managing agents in about 1981 or 1982. In early 1987 the functions of members' and managing agencies were divided and Kellett (Holdings) Ltd was formed. Mr. Kellett wrote most classes of non-marine business, including leading property facultative and excess of loss treaty business, as well as some LMX. He did not however write US casualty business except to a limited extent. Mr. Kellett resigned as underwriter at the end of 1989.
Mr. Kellett was Chairman of LUNMA in 1987.
Mr. Kellett was a member of the Council and the Committee of Lloyd's between 1990 and 1992. 
In his witness statement Mr. Kellett addressed the following topics:-
(a) the business of syndicate 993/994; (b) LUNMA; (c) other issues; (d) his personal underwriting.
Mr. Kellett was a member of the Equitas Reserving Group for the 1992 and prior years. He worked on problems on syndicates in the short-tail catastrophe market.
Mr. Kellett bought a rollover policy for the 1974 account. Premiums were paid out of each of the years of account from 1974 until about 1982. It was used to assist with the computer leasing problem.
In 1974 Mr. Kellett wrote a small number of run-off policies for syndicates whose accounts had included a fairly general US casualty account. The syndicates in question were H. G. Poland syndicates 105, 106 and 109; C. P. Attenborough syndicates 531, 905 and 223; and F. R. Bussell syndicate 870. In June 1977 he obtained reinsurance cover for these run-off policies from Outhwaite syndicate 661. In 1980 Mr. Kellett re-entered the run-off market. He wrote a policy which protected the Bishopsgate Insurance Co. He took about a third, with Mr. Outhwaite and Mr. Drysdale writing the majority of the remaining two thirds between them. The policy protected the Bishopsgate's 1966-7 years in relation to their Drivers casualty account and their 1972-1977 years in relation to Weavers. Additionally in 1981 the Bracey non-marine syndicate 917, which had gone into run-off, was looking for cover to enable it to close-off its account. Mr. Kellett agreed to take a 33% share of an unlimited run-off reinsurance which protected its 1968-1974 underwriting years of account. In April 1982, an opportunity arose to reinsure with Mr. Outhwaite, and Mr. Kellett ceded the risks to Mr. Outhwaite's syndicate, retaining the first £500,000.
Mr. Kellett retroceded his syndicate's computer leasing risks to Mr. Posgate. As to this Mr. Kellett said:-
"I refer to it as a sort of over due which is a policy which has been used in the marine market for hundreds of years. When a ship was missing it would be quite normal for those who had an involvement in the insurance of the ship to go to the over due market, who made a book of writing this specific type of business. It was less common in the non-marine market. ...We knew there had been losses on computer leasing. Mr. Posgate was taking a view on how much those losses would be, and was offering to reinsure if they should be in excess of a specified amount."
In 1987 the 1984 year of account of syndicate 993/994 was left open, because of the syndicate's involvement in policies which ran off the liabilities of deceased Names; these policies were picking up losses on the Outhwaite 1982 open year.
In November 1984 Mr. Kellett in company with Mr. Barber, Mr. Merrett, Mr. Holland and Mr. Parkington, made a presentation to the Inland Revenue. In the course of his presentation Mr. Kellett said in response to the Inland Revenue's contention that Lloyd's was over-reserved "...We are under-reserved. What concerns us is, how the industry can survive its under-reserving. ...The reinsurance to close, (will) in most cases continue to be placed with the following year of account... at what the underwriter believes to be its true worth, and what history will more probably show to be too little." These remarks by Mr. Kellett must be seen in the context in which they were made. He said there was a certain amount of hyperbole.
As to LUNMA, Mr. Kellett said that LUNMA was not part of the investigations branch or the regulator. It was a market association concerned to assist the market in doing what they wished to do in the market and facilitating the transaction of business around the world. 

Mr. Richard Keeling
In 1970 Mr. Keeling commenced underwriting on syndicate 360 as deputy underwriter. Mr. Murray Lawrence was the active underwriter. Over time he assumed more responsibility for the syndicate's underwriting. Mr. Lawrence became Chairman of the Computer Leasing Working Party at the beginning of 1979; from 1979 he was also a member of the Committee of Lloyd's. These commitments took up a lot of his time and he therefore delegated much of the day to day underwriting responsibility to Mr. Keeling. In 1982 Mr. Lawrence effectively handed over the role of underwriter for syndicate 362 (as syndicate 360 had become) to Mr. Keeling. Mr. Keeling was appointed active underwriter of syndicate 362 in 1984. He continued as the active underwriter of the syndicate until the end of 1996.
Mr. Keeling was Deputy Chairman of Lloyd's in 1993 and 1994. He was Chairman of the Reserve Group established by Lloyd's for the purpose of the Equitas reserving exercise. At the conclusion of R&R he was awarded the Lloyd's Silver Medal.
Mr. Keeling struck me as a particularly astute underwriter.
Mr. Keeling addressed the following topics in his witness statement:-
(a) a description of syndicate 362; (b) the asbestos problem; (c) run-off reinsurance; (d) additional reinsurance protection; (e) disclosure to Names; (f) RITC process; (g) disputes with Outhwaite and Meacock; (h) recruitment; (i) his personal underwriting; (j) allegations made against Mr. Murray Lawrence.
I refer above to the run-off policy and other protections purchased by syndicate 362 (under the heading Mr. Lawrence).
As to his syndicate's asbestos reserves, Mr. Keeling said that total reserves for asbestos (including outstandings and IBNR) at 31 December 1981 were approximately US$7 million. This figure had risen to US$44 million by 31 December 1987.
As to certain reports relied on by the Names as to the possible impact of asbestos-related claims, Mr. Keeling said:-
"Six months ago we had some very learned Government experts saying Y2K was going to cost between $600 billion and $1.5 trillion...it actually came out at very little, if anything. ... As an underwriter, you see an awful lot of Governmental and scientific reports and you've got to value them." 

Mr. Paul Archard
Mr. Archard was a partner in Murray Lawrence and Partners and later Managing Director of both Murray Lawrence and Partners Ltd and the holding company, Murray Lawrence Holdings Ltd. Mr. Archard has always been on the accountancy/management side. Mr. Archard was Chairman of the LUAA Committee in 1992 and held that post until he was appointed to the Lloyd's Regulatory Board in 1993. Between 1996 and 1998 Mr. Archard was a member of the Council of Lloyd's. He was re-elected to the Council in 1999 and is currently a Deputy Chairman of Lloyd's.
Mr. Archard struck me as a careful witness.
In his witness statement Mr. Archard addressed the following topics:-
(a) C.T. Bowring/M.L.P.; (b) the LUAA; (c) recruitment/rota; (d) asbestos knowledge; (e) the RITC process; (f) run-off reinsurance.
Mr. Archard referred to the run-off policy purchased by syndicate 362 ( 2/3rds from the Outhwaite syndicate and 1/3rd from the Meacock syndicate) as a "sleep at night policy". He pointed out that in April 1982 the syndicate purchased a stop loss policy from Munich Re and that in 1984 the syndicate purchased a further stop loss reinsurance policy. These arrangements are described in more detail under the heading Mr. Murray Lawrence.
As to rota Mr. Archard said that rota was not the forum for raising specific claims issues or risks, although the general point about inheriting risks from the past was always made.

Mr. Robin Jackson
In October 1960 Mr. Jackson joined the largest professional reinsurer in the United States, the General Reinsurance Corporation as a trainee casualty facultative underwriter. He worked for General Re for 11 years until June 1971 in their New York office. He underwrote casualty reinsurance (or, liability business as it is known in the UK). In 1971 following a move back to England he started Unionamerica Insurance Co. Ltd for a Los Angeles based financial institution. Mr. Jackson was the Managing Director and was in charge of all underwriting. Unionamerica underwrote most classes of non-marine insurance and reinsurance.
Mr. Jackson joined the Merrett agency in September 1976 to take over from Mr. Leslie Dew as the active underwriter of the non-marine syndicate from 1 January 1977. When Mr. Jackson joined the syndicate in late 1976 it was called syndicate 772. The number was changed to 799 about one year later. Mr. Jackson ceased underwriting on syndicate 799 at the end of the 1988 account, but stayed on at the managing agency for a further two years full time to assist his successors. The 1990 year of syndicate 799 was left open.
Mr. Jackson was Chairman of LUNMA in 1986. He was also a member of the AWP from its inception in 1980 until 1996. From 1984 until 1996 he served as Chairman of the AWP. He was also a Director (and Chairman) of Toplis & Harding (Asbestos Services) Ltd, the service company established by the AWP in 1984 through which the AWP ultimately carried out its administrative functions. The name was later changed to Toplis & Harding (Market Services) Ltd. Mr. Jackson was a Director and Chairman of LMCS from 1990 until October 1998.
From 1994 to 1996 Mr. Jackson worked on the Equitas Project as one of a handful of people making up the Core Group of the Reserving Project. Between 1992 and 1994 Mr. Jackson was the Chairman and Chief Executive of Centrewrite, the first Lloyd's owned operation designed to underwrite (and therefore determine) members' obligations on syndicates in run-off. He was Chairman of and set up the Specialist Claims Unit, established by Lloyd's to handle asbestos, pollution and health hazard claims. This body became the basis for the Equitas Claims Department.
In short, Mr. Jackson has spent nearly forty years handling US liability business in some form or other. Mr. Jackson said that among the underwriting community only Mr. Ayliffe and Mr. Rayment knew as much as he did about asbestos-related claims, adding that they probably knew a bit more.
Mr. Jackson addressed the following topics in his witness statement:-
(a) his career in the insurance industry; (b) his experience of US liability business; (c) asbestos claims and the London Market; (d) the AWP; (e) the Johns Manville settlement; (f) the Wellington Agreement and the Asbestos Claims Facility; (g) DES and other claims; (h) the development of asbestos claims; (i) reinsurance; (j) the Global Accounts; (k) reinsurance to close; (l) expansion of capacity by syndicate 799; (m) disclosure of asbestos by syndicate 799; and (n) his personal underwriting details.
As to asbestos-related claims, Mr. Jackson said that the unique and unprecedented features of the way in which such claims unfolded, was that they did not simply increase in number, peak, then subside, as with nearly all other claims. Instead, the claims reached a steady plateau between about 1982/83 and 1985, then just seemed to increase and increase in waves, facilitated by various inter-related factors. He added "I cannot emphasise enough how the Plaintiff Bar's extraordinary action in connection with asbestos was so fundamental to the development of these claims. ...Everyone recognised the contingency fee, ambulance chasing rationale which drove the Plaintiff Bar; but no one in the industry could have conceived that it would have the profound and grave effect it did."
In his witness statement Mr. Jackson said:-
"During the period 1979-1993 I cannot...remember anyone producing any hard statistical information on what share of asbestos claims was borne by the London market, let alone trying to work out what the relative exposure of the London market, as opposed to the US market, was to asbestos bodily injury claims. In July 1993...I gave a talk to the Association of Lloyd's Members in Boston. For the purposes of the speech I asked Peterson Consulting LP to try to obtain some statistical information as to the amounts paid by insurers and policy holders for asbestos bodily injury indemnity... On the figures which I presented to the meeting in 1993, Lloyd's share was approximately US$2.1 billion of a total of US$7 billion i.e. 30%. These figures made no allowance for outwards reinsurance placed by Lloyd's syndicates. They were not figures which would have been available during the period 1978-1988."
Mr. Jackson concluded his witness statement as follows:-
"It is difficult in a matter of pages to explain just how much time and effort I gave to the problem of asbestos... To be involved in this action after these efforts is insulting. ...Like others in the insurance industry, we at Lloyd's, in good faith, under-estimated the ultimate cost of asbestos losses... What I...strongly deny is any wrong doing in any of my dealings in asbestos matters."
Mr. Jackson pointed out that it doesn't follow that policy holders against whom asbestos-related claims were made had adequate insurance policy limits available to pay them. Mr. Jackson said that it was impossible to work out what the net exposure of Lloyd's would be to any particular risk.
As to his testimony given to Senator Nickles and others on 19 March 1985, Mr. Jackson said "I was perhaps over-egging a situation to try and get their attention."

Mr. Keith Rayment
Mr. Rayment was employed at R.W. Sturge from 1969 to May 1990 in their Claims Department. He was involved in the non-marine syndicates at Sturge, primarily syndicate 210. He became Claims Director of syndicate 210 in 1979. (Mr. Rokeby-Johnson was the underwriter of syndicate 210 from about 1974 to about the end of 1987). From 1983 Mr. Rayment was a member of the Asbestos Working Party. He was a member of the Claims Sub-Committee of the AWP from about 1981 onwards. He also sat on the Reinsurance Claims Sub-Committee of the AWP from 1983. In 1984 the AWP set up a service company called Toplis & Harding (Asbestos Services) Ltd. He was a director of this company from the outset. When the company's name was changed to Toplis & Harding (Market Services) Ltd he remained a director. Mr. Rayment was one of the two London Market representatives (the other being Mr. Ayliffe) asked to negotiate with the asbestos producers and their insurers to reach what ultimately became known as the Wellington Agreement. Mr. Rayment assisted with the setting up of the Asbestos Claims Facility which came about as a result of the Wellington Agreement. In October 1988 the ACF ceased operation and the Center for Claims Resolution was formed by certain asbestos producers to provide similar services. Since then Mr. Rayment has been a non-voting member of the Board of the CCR.
Mr. Rayment first wrote business as a Name in 1980. Syndicate 210 left its 1990 year open. This was the last year that Mr. Rayment was a member of the syndicate.
Mr. Rayment, Mr. Jackson and Mr. Ayliffe were probably the three most knowledgeable people in the Lloyd's market as to asbestos-related claims.
Mr. Rayment struck me as a highly conscientious Claims Man who worked tirelessly to assist the market in relation to the handling of asbestos-related and other long-tail claims. I was greatly assisted by his evidence.
In his main witness statement Mr. Rayment addressed the following topics:-
(a) syndicate 210: asbestos-related risks; (b) syndicate 210: the determination of the reinsurance to close premium; (c) an overview of the nature of asbestos-related claims; (d) the work of the AWP; (e) reserving and attorneys' reports; (f) market knowledge of asbestos; (g) reserving by the Lloyd's market generally; (h) the development of asbestos claims; (i) the Wellington Agreement; (j) asbestos property damage; (k) asbestos bodily injury claims compared with asbestos property damage claims, DES and Agent Orange; (l) impact on other insurers.
In his witness statement Mr. Rayment said:-
"It is true that the Lloyd's Market has learnt, to its detriment, that asbestos has proven to be a unique claim in terms of the volume of underlying claims and the extent of the impact on the Lloyd's Market. But the plain truth is that, notwithstanding the wealth of experience and expertise that the Lloyd's Market had, and the enormous resources and effort which the Market threw into dealing with the problem, asbestos claims developed in a way which was not expected or anticipated by even the most experienced professionals in the Lloyd's Market. The true scale and cost of the asbestos problem is still difficult to quantify and indeed claims are still coming in at a very high rate. No one in the early 1980's anticipated that; not the Lloyd's Market, nor the Company Market; not even the US insurance and reinsurance companies. Asbestos has defied the entire world-wide insurance industry. The whole purpose of the AWP was to get information to the Market, not to withhold or conceal it."
Syndicate 210 purchased a run-off policy from Kemper Re and Fireman's Fund in 1974. The run-off protected the syndicate's 1969 and prior years of account.
As to Mr. Roger Bradley's alleged conversations with Mr. Rokeby-Johnson in 1973, Mr. Rayment said that Mr. Rokeby-Johnson never expressed any such views to him. 
Mr. Rayment said that one thing the AWP did not do was to make any IBNR recommendations. Decisions in respect of IBNR were matters for the individual syndicate or company concerned. Mr. Rayment pointed out that the AWP did not try to calculate a figure representing the total reserve requirement of Lloyd's as a whole in relation to asbestos-related claims, let alone to do so by the method adopted by the Names. "I firmly believe that the only way in which a reserve requirement could, and indeed should, have been worked out, was by each syndicate looking at its own inwards book of business, looking at its own reinsurance protections, working out its own outstanding figures, and forming its own view in the light of all the information available to it, as to what its IBNR estimate should be, and hence arriving at its own decision as to what its reinsurance to close should be."
Mr. Rayment said that the market had coped with Allied Crude, Hurricane Betsy, S.M.O.N. (a problem arising from Japanese people taking too many enteroviaform tablets), Computer Leasing and many other claims. During the 1980s the asbestos problem behaved in a way which was quite unprecedented and became much worse than people in the market had anticipated.
Mr. Rayment provided a helpful chart of the development of asbestos claims (see chapter 16, Table 2 below). He said that:-
"Between the Borel decision in 1973 and the beginning of 1981, there were probably something in the region of 8,000 to 10,000 claims in that 8 year period. In the period between 1981 and the Wellington Agreement, the filing pattern was... "remarkably steady at 500 new claims per month." The "opening inventory" of the ACF in mid-1985 was about 25,000 claims. In the 18 month period after the Wellington Agreement the rate of claims rose initially to 700 per month and then to around 1,000 per month. In 1987 the claims rose to 2,000 per month (a fourfold increase in the level of claims pre the Wellington Agreement), and then went up to 3,000 per month, before settling at 1,500 per month for a while. By 1990, this had risen again, so that in the early 1990's the rate was about 24,000 a year; an annual total which was broadly comparable to the entirety of claims in the 10 year period after Borel (1973 to 1983). To bring the picture up to date: the current rate of claims is around 60,000 a year. The current total volume of claims (including those that have been settled) is approximately 450,000."
Mr. Rayment set out in his witness statement some of the interlinked reasons why things looked so different at the end of the 1980s/early 1990s to the way in which they had looked in the early 1980s. He referred to a number of false dawns in connection with asbestos-related claims. 
Mr. Rayment cited Johns Manville Corporation as an example of estimates of potential claims proving to be incorrect. In August 1986 the United States Bankruptcy Court for the Southern District of New York signed an order pursuant to which Johns-Manville undertook an extensive campaign designed to provide the maximum amount of publicity, with respect to the confirmation process of the Plan before the court. The campaign provided for national television and radio advertisements, newspaper advertisements in the six leading US and Canadian newspapers and in the largest circulation daily newspaper in each State, the District of Columbia and each Canadian Province. This publicity campaign was designed to inform as many future asbestos claimants as possible of the impact of the Manville reorganisation, upon whatever rights they might have against Manville as Debtor. I refer to the decision of Judge Lifland dated 18 December 1986 and the subsequent appeals. In his judgment dated 19 January 1995 Senior District Judge Weinstein of the United States District Court E and SD New York said:-
"When the distribution plan was confirmed in 1986, it was established that the Trust would receive approximately 83,000 to 100,000 claims over the course of its life into the middle of the next century. To date, the Trust has received approximately 240,000 claims and it is expected to receive hundreds of thousands more."

Mrs. Catherine Stynes
Mrs. Stynes qualified as a Chartered Accountant in 1979. After working for Baker Sutton & Co and Ernst & Whinney Mrs. Stynes joined the Corporation of Lloyd's in February 1984 in the AARD. The AARD was the Secretariat to the AASC and provided administrative support to AASC. Mrs. Stynes was appointed Manager of the AARD towards the end of 1984 and became Secretary to AASC. In October 1987 she moved to the Underwriting Agents Department as Manager. In 1989 she became Manager of the Policy Development and Review Department. Mrs. Stynes left Lloyd's in November 1991. While at Lloyd's she was known by her previous married name, Mrs. Cathy Shorthouse.
In her first witness statement Mrs. Stynes addressed the following matters:- (a) the role and responsibilities of the AASC and the AARD; (b) the Global Reports and Accounts; (c) accounting and audit issues.

Mr. Alan Pollard
Mr. Pollard is the Run-Off Operations Director of Equitas Ltd. Before joining Equitas in 1996, Mr. Pollard worked for the Corporation of Lloyd's for over 40 years. He was the Senior Manager of the Membership Group of Lloyd's between 1977 and 1983. In 1983 Mr. Pollard moved to the Lloyd's Policy Signing Office. In October 1988 Mr. Pollard was appointed Director of Administration of AUA 4 Ltd, a specialist company formed by Lloyd's to administer the run-off of certain syndicates. In 1989 the company changed its name to Syndicate Underwriting Management Ltd and in 1990 Mr. Pollard was appointed its Managing Director. SUM was responsible for the run-off of Lioncover which in 1987 had reinsured the PCW syndicates.
In his witness statement Mr. Pollard addressed the following topics:- 
(a) information to applicants; (b) Rota Committee interviews; (c) Brochures; (d) regulation of admission procedure; and (e) growth in membership.

Mr. Simon Tovey
Mr. Tovey worked for the Corporation of Lloyd's between 1984 and 1989, latterly as the Manager of the MSSD.
Mr. Tovey joined Lloyd's in April 1984 as an Assistant Manager in the MSSD. He remained as Assistant Manager to Mr. Tony Parkington until August 1985. He was then seconded to work for Mr. David McWilliam, who was head of the Regulatory Services Group, as successor to Mr. Randall. Mr. Tovey stayed there for no more than a year, and then went back to the MSSD as Manager, succeeding Mr. Parkington. He stayed there until March 1989 when he was offered a job by the Sturge Group.
Mr. Tovey addressed the following topics in his witness statement:-
(a) the organisation of the MSSD; (b) alleged concealment of asbestos problems; (c) the Annual Solvency Test; (d) the work of the MSSC; (e) MPRs; and (f) the Statement of Facts on the Regulatory Background.

Mr. Ian Simister
In 1982 Mr. Simister was working as Project Manager of the Management Service Group at Lloyd's. He gave evidence of the postal distribution system within Lloyd's in 1982.
Mr. John Garner
Mr. Garner was called to respond to the evidence of Mr. Steel (see above).
Mr. Garner joined the LIBC in 1986. He remained on the LIBC until the end of 1990. He was Deputy Chairman in 1988 and 1989 and Chairman in 1990.
Mr. Garner referred to the comments which Mr. Steel alleged were made by Mr. Lawrence and Mr. Cockell during a LIBC dinner. Mr. Garner did not recall any such remarks being made by Mr. Lawrence or by Mr. Cockell at a dinner at which he was present, or on any other occasion.

Mr. Alastair Clark
Mr. Clark is the Executive Director, Financial Stability, at the Bank of England. He has line responsibility for the Bank's relationship with Lloyd's. He had some involvement in matters relating to Lloyd's in previous posts in the Bank, but not before 1987.
Mr. Clark referred to references in Names' witnesses statements to a letter from the Bank of England to major banks, purporting to have warned banks of risks and losses associated with underwriting at Lloyd's. Further the Bank of England has had a number of enquiries in the last two years from various individuals alluding to the existence of a report (sometimes referred to as the Armageddon Report), or in one or two instances a letter. In response to these approaches Mr. Clark commissioned a number of reviews of the Bank's records in those areas of the Bank where he would have expected any such report or letter to have been prepared. Nothing found gives any indication that such a report was prepared or that such a letter was written. In addition, Mr. Clark has spoken to a number of those who were at the time Directors or senior staff of the Bank and who would have expected to see, or have been involved in the preparation of, a report or letter on this subject. None of them recalls any such report or letter. In addition the issue has been discussed with Lord Richardson, who has no recollection of a report or letter on this subject.

Statements admitted under CPR Part 33.2
Statements were admitted under CPR Part 33.2 from Mr. Patrick Bird, Mrs. Mary Hitchcock, Mr. Thomas Hitchcock, the Treasury Solicitor, Lord Kingsdown, Mr. Paul Morris, Sir Jeremy Morse, Mr. Ralph Rokeby-Johnson, Mr. Joseph Hodges and Mr. Robert Keville.

Mr. Robin Aaronson
Mr. Aaronson is Director of the London office of LECG, which is the economics and policy practice of Navigant Consulting, an international consultancy firm. Mr. Aaronson has been a consulting economist for about 14 years. Prior to joining LECG, he was a partner in the firm of PricewaterhouseCoopers. Before that he was a member of the Government Economic Service, first at H.M. Treasury, and then at the Monopolies & Mergers Commission.
Mr. Aaronson was instructed as an expert to analyse whether there was any economic evidence that the changes in Lloyd's capacity during the Relevant Period, resulted from exposure to asbestos losses, which did not affect the London market as a whole. In his report he said:-
"I have discovered no evidence that the changes in Lloyd's capacity resulted from exposure to asbestos losses, whether they affected the rest of the London market or not. It might fairly be argued that there is no economic evidence which, even in principle, could prove or disprove the hypothesis. If the hypothesis were true, however, I would have expected to find some pointers to it in the data, for example in Lloyd's capacity expansion during the Relevant Period being particularly concentrated in certain markets, or being unrelated to capacity increases elsewhere. The economic evidence I do have points to alternative explanations for the changes in Lloyd's capacity, and does not support the proposition as stated above. In my view, the changes in capacity experienced at Lloyd's can be adequately explained in terms of external economic and commercial forces."
Mr. Aaronson accepted and emphasised the limited contribution he could make to the issues that I have to decide, as reflected in the passage quoted above.
Witnesses not Called by Lloyd's
Lloyd's did not call a number of witnesses whose witness statements were exchanged. In reaching the conclusions set out in this judgment I have had regard to the fact that Lloyd's did not call these witnesses and I have considered whether any adverse inferences should be drawn.

16. AN OVERVIEW OF THE NATURE AND DEVELOPMENT OF ASBESTOS-RELATED CLAIMS
Appendix 3 contains a Chronology of certain information relevant to asbestos-related claims for the Relevant Period. The keys (SI = syndicates at interest or interested insurers; SS = syndicate specific; PA = Panel Auditors; AWP = Asbestos Working Party) represent an attempt to identify recipients of a document, but do not constitute a finding that any particular individual or syndicate received or was aware of the document or its content. Although Appendix 3 contains extracts from documents, I have of course had regard to the whole of each of the documents referred to (and all other material before the court). Appendix 2 contains a list of US cases concerning coverage etc for asbestos losses for the Relevant Period.

Introduction
Although there have been a variety of mass toxic tort claims in the United States, none have had or continue to have the profound and lasting impact on the global insurance industry that asbestos-related claims have had.
The first problems perceived in relation to asbestos were in respect of asbestos-related bodily injury claims. The first wave of workers bringing asbestos bodily injury claims tended to be those exposed to asbestos in the 1940's and 1950's, often in the shipbuilding industry. The claims which workers brought against policyholders were then presented to the London market under third party general liability policies extending to cover products liability. The products liability sections of such policies were usually written in the aggregate. When Lloyd's issued these policies it was not anticipated that occupational injury claims, let alone asbestos bodily injury claims, would be covered by these policies. In fact, until asbestos claims, these were policies which had rarely been claimed upon. They had previously been profitable policies to write.
The main diseases alleged by claimants to have been caused by exposure to asbestos were (in order of severity of injury) mesothelioma, lung and other cancers, asbestosis and pleural plaques. A typical asbestos claimant would inhale the airborne asbestos particles usually in his workplace. The majority of asbestos claimants over the years have alleged either asbestosis or pleural diseases both of which are dose-related i.e. dependent upon exposure over a significant period of time. Mesothelioma, and certain other cancers, on the other hand, may be contracted after much shorter doses, perhaps even a single short exposure to asbestos.
In 1964 Dr. Selikoff published the first epidemiological study of insulation workers and asbestos diseases; and since then, studies have appeared in medical journals documenting the relationships between asbestos exposure and disease. According to Mr. Rayment, to the extent that insurers would have had asbestos in mind as a potential claim, that would only have been in respect of occupational disease and employer liability policies.
In 1980 the London market's US attorneys, referred to Dr. Selikoff's prediction of 20,000 asbestos-related deaths per year. There are now something like 60,000 claims a year being made, but it was not until towards the end of the 1980's that the insurance industry began to receive anything approaching 20,000 claims a year in total. The majority of the claims over the years have been in respect of asbestosis and pleural diseases. On the whole (apart from the most severe asbestosis claims), these illnesses have not caused deaths. The claims which are more likely to be linked to deaths are those which are cancer-related. But the claims arising from the severe mesothelioma (which is a cancer claim) have remained fairly constant at around 4%, and cancers overall have accounted for around 10-20% of the claims. In the early 1980's the volume of claims was much lower: around 6,000 a year in the period up to the Wellington Agreement. The number of cancer claims was again only a small percentage of that figure: in the hundreds, not the thousands. The insurance industry has never in fact seen anything like 20,000 cancer-related claims a year.
In the case of asbestos-related claims the exposure which the individual has suffered is not as a purchaser of goods on the open market for his own private use, but rather exposure to the product within, usually, the occupational workplace. The majority of these claims involve people who have been exposed to asbestos fibres in their environment, usually their working environment.
Asbestos-related bodily injury claims arising out of workplace exposures started to develop at a time when the products liability laws in the United States were undergoing change. Originally, these types of claim, to the extent that they were even advised to Lloyd's, came through as workers' compensation claims. 
Claimants had to undergo medical examinations before the compensation boards prior to having a claim accepted. Even assuming that a claimant could produce the necessary medical and factual evidence required to qualify for workers compensation, the benefit received by an individual was normally expressed as a percentage of their basic income. In most cases, the top benefit would be two-thirds of their average weekly income. In practice, given that the type of worker who might bring a claim in respect of injury caused by asbestos exposure could usually be classified as a low income earner, even the highest compensation available was, in real terms, modest to a person who was totally disabled or whose life expectancy was severely shortened.
Prior to 1965, if a claimant wanted compensation outside the workers compensation laws, he would have to bring a legal action for bodily injury caused by exposure to asbestos based on theories of negligence or breach of warranty. Until 1965, only the actual purchaser of a product could bring a products liability claim against the producer. 
In 1965, the American Law Institute issued the second edition of Restatement of the Law of Torts, which significantly enlarged the categories of persons potentially eligible to bring a products liability claim. The new rule ("Rule 402A") eliminated the "privity of contract" requirement for a products liability claim. Thus, not only the direct purchaser, but also any individual who might foreseeably be injured by a product, could bring products liability claims.
One of the first products liability lawsuits which successfully used "Rule 402A" and involved an asbestos bodily injury claim was Borel vs. Fibreboard et al. The case was filed in 1971 in US District Court, Eastern District of Texas. Clarence Borel's asbestos-related injury was due to workplace exposures to asbestos products. These products were supplied to his employer company by a number of asbestos suppliers or producers, of which one was Fibreboard. The case, having reached the appellate courts in 1973, was the first major US case where the courts found liability on the part of the manufacturers on the basis of products liability.
Following Borel, asbestos claims against producers, in time, became more common. A typical case would involve a group of claimants alleging injury against a number of asbestos products manufacturers. A typical claimant was often a transient worker. These workers would have various skills and would be based at a local union hall. Employers who required people for particular projects would go to the union hall to employ the workers needed. These workers would then be employed for the particular project. On completion of the project, they would return to the union hall and await their next employment. Therefore, a typical claimant, who would work for a number of different employers during the course of his working life, would have been exposed to many different asbestos products at different work-sites or projects. Thus, by naming as many of the asbestos producers as possible, the claimant would increase his likelihood of success at trial. In turn, the producers who were being sued might issue a cross-complaint against other producers so as to reduce their potential liability. Workers' compensation had brought only modest compensation. The Borel ruling meant that there was now a way of obtaining compensation which did not require workers to establish negligence, to avoid the worker's compensation route. However, during the 1970's asbestos-related claims remained relatively few, compared with what was to happen later. Prior to 1980 there were only about 950 asbestos cases filed in the US Federal courts. 
The number of filings has continually increased since then, with the most significant increase from the late 1980's and through the 1990's. To date there have been about 450,000 individual claims filed. At the end of 1988, (the end of the Relevant Period), there had only been about 100,000 claims filed. The claims are filed in State and Federal courts in virtually every jurisdiction in the United States. 

Manifestation Versus Exposure Debate
Whilst the decision in Borel meant that claimants could bring products liability suits against producers, it did not necessarily follow that the producers' products liability insurance policies provided coverage for these claims. Initially, insurers raised a number of defences against the claims made under these policies.
These defences were:
(1) "Expected/Intended". Most modern policy definitions of the term "occurrence" include an exception if the injury or damage was "expected or intended" by the policyholder. However it was not often possible to prove this.
(2) "Non-disclosure/Misrepresentation". However, as many policies were placed in the 1940's through to the 1970's, policyholders could argue that asbestos claims were minimal at the time and would not have impacted insurance policies.
(3) "Known Loss/Known Risk". Courts had generally held that it is not possible to insure against a loss in progress or a known loss. These defences were unsuccessful, due in no small part to the fact that courts which were considering asbestos cases were under significant social pressure to find in favour of coverage.
Prior to asbestos-related claims, it was rare for the London market to become involved in substantial litigation with their policyholders. However, one of the major issues as between the policyholder and its insurers (and indeed amongst the insurers themselves) was the basis on which coverage for asbestos-related claims would be provided; namely, which policies and which insurers would respond to a claim, or what was the "trigger" for coverage. 
By the late 1970's, the London market insurers had to consider the basis upon which policies would respond to the 'date of loss' issue. For example, the loss could have occurred at any point during the whole period in which the claimant was exposed to asbestos (the 'exposure' theory); or it could be argued that the loss occurred when the disease resulting from the claimant's asbestos exposure manifested itself or was diagnosed (the 'manifestation' theory). 
Bell Asbestos, a Canadian mining company and its primary insurers eventually came to an agreement in 1977 as to the basis on which insurers would respond to the current and future claims. The London market was asked to support the agreement (which adopted an exposure basis) even though, at this stage, the London market had no financial involvement with the claims. This request caused some concern to the market in general. A number of underwriters did not consider the exposure theory allocation to be valid under the terms of the policy. Nevertheless, as a result of the negotiations that took place between Bell and the London market, the London insurers decided to accept the agreement, albeit on a without prejudice basis. (The London market did not pay any losses under policies in respect of Bell until the early 1990's).
Notwithstanding the Bell agreement, it was not until the Eagle Picher and, more importantly the GAF declaratory actions which were filed in 1978 and 1979 respectively, that a large part of the London market became familiar with the manifestation versus exposure debate. Accordingly, it was not until around 1979 that the London market really had to address and take a position in that debate.
Proponents of the exposure theory, which in 1979 included most policyholders and some members of the insurance industry, argued that each injurious inhalation of asbestos fibre causes injury. Accordingly, it was argued, each insurer who provided coverage during the period of time that the claimant was exposed to asbestos fibres should pay a proportion of the damages. Supporters of this theory were able to point to the Borel case, as well as to expert medical testimony that confirmed the progressive nature of asbestos-related diseases.
Those who, on the other hand, supported the manifestation theory, argued that bodily injury did not occur until the continuous and progressive injury process had overcome the body's natural defences and the individual evidenced some symptoms of an asbestos-related disease or some form of dysfunction. Therefore, the date when the claimant became aware of an asbestos-related disease, or the date when the disease was diagnosed (whichever occurred first), was the controlling date for determining which insurance policy should respond. 
By the end of 1979, six declaratory actions had been filed. This coverage litigation caused much concern in the insurance markets in both the US and London, not least because of the legal costs involved.
The London market and, in particular, claims men were troubled about the market split in respect of coverage which was apparent in the responses to the increased number of declaratory actions. The fact that the market was split in terms of coverage meant that there was not a co-ordinated response from those involved; on the contrary, the uncertainty over the application of insurance policies lent itself to an inconsistent and impractical approach to the handling of asbestos-related claims within the London market.

The Work of the AWP
I have already referred briefly to the AWP in chapter 10. The AWP's principal aim was to gather information and get it to the market as soon as possible. There was no question of the AWP concealing information nor of downplaying its importance or significance.
There were a number of factors which combined to provide the impetus for the formation of a market body, the AWP, to provide co-ordination and consistency in the handling of asbestos claims by the London market. One of the factors was the manifestation versus exposure argument.
The AWP was established in August 1980. Initially its membership comprised five leading underwriters and four claims personnel from the Lloyd's and Company markets, whose organisations all had interests in US casualty business. Mr. Robin Jackson, Mr. Rokeby-Johnson, Mr. Charles Skey, Mr. Don Tayler and Mr. Ted Nelson (the first chairman) sat on the AWP. The claims sub-committee of the AWP was initially made up of Mr. Philip Froude, Mr. Leslie Kemp, Mr. John Heath and Mr. Jim Ayliffe. Mr. John Heath was the claims manager for H.S.Weavers and represented the Company market from the outset. This claims committee was the driving force behind AWP activities. 
For the first two years of operation, the AWP's claims committee, dealt primarily with direct insurance matters only. Later, the AWP created a reinsurance claims committee to deal with the increasing number of reinsurance claims being advised (the original claims committee then became known as the direct claims committee). Mr. Rayment was a member of both. The members of both AWP claims committees were drawn from the senior claims managers of leading Lloyd's and Company market insurers; they were very often leaders of policies written in the London market. These leaders had day-to-day involvement in handling asbestos claims for the accounts which they led. In addition to the claims committees of the AWP, when notifications were received in respect of claims presented against policyholders, specific working claims committees were set up to deal with the policies at issue in respect of each policyholder. As these 'working' or 'ad hoc' claims committees were established for the purpose of claims processing, negotiating and if needs be, providing support in asbestos claims litigation, the leading underwriters on the policies would be invited to serve on the committees on an ad hoc basis, for the purpose of dealing with the claims in question, irrespective of whether they were on the AWP or one of its formal committees. This meant that claims were handled in accordance with the usual market practice (that is by the leaders of the policies in conjunction with their attorneys), with the added assistance provided by members of the appropriate (i.e. direct or reinsurance) AWP claims committee.
The AWP claims committees met on a much more frequent basis than the full AWP in order to discuss individual claims, evaluate the overall claim trends in the United States and consider general issues. Claims committee members were aware of the developments in the United States law relating to both coverage issues and claims handling issues. This knowledge was acquired not only through membership of the AWP claims committees but as a result of hands on experience of day-to-day syndicate matters.
Participation in the AWP was sought from all sectors of the London market and the working party grew. There were representatives from marine and non-marine syndicates; from the Company market including a representative from the Institute of London Underwriters and from the Reinsurers' Offices Association. Although these representatives did not have authority to represent the other members of their organisations, their involvement was sought to bring as wide a perspective as possible from the various sectors of the London market when considering the problems arising from asbestos claims.
The AWP was formed, primarily, with the objective of co-ordinating activity in the area of asbestos-related claims. The AWP liaised with the various entities involved regarding the collation and circulation of information to the London market. The distribution of information to the market was probably the AWP's principal preoccupation. However, the AWP had other functions, one of which was to provide a forum for discussing the problems relating to asbestos claims. It was also the aim of the AWP to explore solutions which might be available to resolve some of the issues raised by asbestos-related claims. 
The AWP had no involvement in the resolution of the manifestation versus exposure debate.
The AWP did not make any IBNR recommendations. The AWP considered that decisions in respect of IBNR were matters for the individual syndicate or company concerned. I find that the decision of the AWP not to make IBNR recommendations was an honest decision taken for understandable commercial reasons.
Prior to the establishment of the AWP, attorneys were retained usually by the leaders on the slips to advise on the liability claims presented either by policyholders ("servicing attorneys") or in respect of coverage litigation commenced by policyholders against insurers ("litigation attorneys").
Both the servicing and litigation attorneys reported to the London market. The servicing reports dealt with reserve recommendations in respect of insured claims. The litigation reports contained no reserving information but reported on the progress of litigation from either a manifestation or exposure standpoint. Servicing reports provided underwriters with information to assist both syndicates and companies in setting their reserves. That information was in respect of known claims, such as the number and nature of claims; the average settlement costs of the claims; how the indemnity and expense costs could be allocated over the policies and years on risk; and what the recommended reserve figure would be. The attorneys writing the servicing reports (at the AWP's request) began to try to estimate the likely numbers of claims per insured to the end of each accounting year.
Attorneys began sending the servicing reports in draft and these would be discussed by the claims committee. 
As the number of both claims and insureds increased significantly over the years, the number of reports that each syndicate or company in the market would receive per year grew enormously. The servicing reports would go to those syndicates and companies which were on the policies at risk for a particular insured. In order to give an overview to every syndicate and company in the market, the AWP decided to ask attorneys to provide an annual overview report in respect of asbestos claims generally. The insured-specific year-end servicing reports focused on information such as reserve recommendations and increases in claims against that particular insured. 
In addition to the attorneys' reports, Mr. Jim Ayliffe or the chairman of the AWP sent 
out a market circular in respect of major developments or particular asbestos claims issues. 
The AWP recognised that the traditional method by which attorneys' reports were obtained and distributed within the market was not appropriate for the handling of asbestos claims. 
The London market's standard practice for adjusting claims made under their policies was as follows. The first stamp or participant of the slip is known as the leading underwriter (sometimes there is more than one leader) and it is this company or syndicate which makes the main decisions and recommendations to the other participants on the slip (the "following market"). Invariably, the leader on a slip had negotiated the premium for the policy and would generally be considered expert in the type of business written. The lead syndicates or companies would handle asbestos claims, as they would all potentially serious liability claims, in conjunction with experienced lawyers. The leader would appoint an attorney to advise on the claim. When a claim was made under a particular policy, the claim would be notified to the broker who originally placed the policy and the broker would prepare a claims file. This file would contain all the claims documentation and a copy of the relevant slips. The file would be shown to the leading underwriter for his review and comments. Then, the file would be presented to the following market for review. Each participant would 'scratch' the file to indicate sight of the documents. Comments might also be made on the file, for instance, syndicates or companies might comment as to whether they agreed with the leader's actions or not. All following syndicates and companies do have the right not to agree to a particular course of action or settlement proposed by the leader. However, in the great majority of situations, the following market tended to adopt the position taken by the leader. This was the standard market practice. Attorneys' reports advising on the claims were traditionally addressed to "Underwriters at Interest" and were sent care of the London broker. The attorneys' report would be placed in the claims file prepared by the broker and circulated around the market. This had been done for many years; albeit, there were exceptions to this system if warranted in individual circumstances or, if due to matters of privacy or concern over litigation and discovery, it was thought that the London broker should not be involved. 
There were a number of problems with adopting the usual claims handling procedure for asbestos-related claims. First, the leaders on slips for asbestos-related claims might have espoused 'manifestation', whilst participants further down the slip might have been 'exposure' proponents. 
As regards the actual coverage litigation between policyholders and their insurers, two sets of litigation attorneys would have to be appointed because of the market split. One attorney would be retained to advise on the course of the litigation from a manifestation perspective, another attorney would advise on the litigation from an exposure viewpoint. Each 'litigation report' would be privileged as between the attorneys and their respective clients; syndicates who supported manifestation as the basis of coverage could not see exposure litigation reports and vice versa. 
There was also another privilege issue. The London market insurers recognised that brokers were the agents of the policyholders. This caused the market some concern. Insurers would not wish brokers to reveal details contained in the attorneys' reports, but, as agents of the policyholders, brokers were obliged to pass on information which might be of interest to the policyholders. This meant that circulation of the attorneys' reports by the brokers was not practical. 
Further, as both the number of claims against policyholders and actions for declaratory relief by those policyholders increased, so did the volume of attorneys' reports coming into the market. The pressure on the brokers in respect of the distribution of the reports around the market was very great. There was concern that there might be a delay in some participants on the slip being advised of the asbestos claims. The brokers might not always be able to circulate the claim files to the smaller participants at the end of the slips efficiently due to the sheer volume of claims coming in to the market. An asbestos claim might spread over a 20 year span of insurance coverage (in later years it became evident that there might be 30 or 40 years of insurance coverage targeted). In addition, coverage was usually purchased in layers. Each layer might have 50 Lloyd's syndicates and companies subscribing. Often a syndicate or company would write the policy for a number of years. Therefore, an asbestos producer with a claim could have 200 syndicates and 100 companies insuring it. The attorneys' reports (and claims files) would have to be seen by all those participants. Those near the end of the slips might not see the report for months. This was considered to be a serious problem and it soon became apparent to the AWP that a different method of circulation was required.
Initially, the AWP retained Elborne Mitchell, a firm of solicitors, to hold any reports of a confidential nature. The market was asked to visit Elborne Mitchell's office in order to review documents retained there.
By the end of 1981, when the AWP had been in operation for a full year, it was decided that office space ought to be retained by the AWP. This was the start of the more stream-lined distribution process undertaken by the Toplis & Harding service companies and, ultimately, LMCS. Space was obtained from LUNCO and an AWP office established. Ms Ann Seavers was employed to run the office and to carry out and oversee the distribution of information to the market.
One of the first things Ms Seavers did was carry on the process (originally undertaken by the AWP claims committee members) of locating all slips with asbestos exposure. This was part of building up the coverage picture of every insured. She contacted the brokers and obtained slips from which she could ascertain the identity of every participant on every slip for every year in issue. 
The fact that asbestos-related claims potentially affected policies written many decades earlier gave rise to problems in identifying the policies which had been written. The starting point for a claim is when the policyholder puts the underwriter on notice. But this notification process had happened in the past in different ways, for example, a notification through a broker or perhaps a claim on US attorneys. In some cases, more than one broker would be involved, and this might result in notification to two different sets of underwriters and the appointment of two sets of attorneys.
These notifications might themselves not identify all the potential coverage that was available. In some cases, insureds had destroyed or mislaid their documentation, or the documentation pointed to one broker's involvement whereas another broker had been used on different years.
These problems were addressed by sharing information, obtaining the more detailed information required (for example, on the coverage which had been written) and appointing one attorney for each insured so as to avoid duplication.
The AWP (and eventually the Toplis & Harding service companies) spent considerable time unearthing the other policies to which London may have subscribed in order to complete the 'jigsaw' of coverage for each insured. Once details of the policies were found, this was provided to attorneys in order for them to build the coverage profile. As more coverage was identified for each insured, a more precise reserve evaluation could be recommended. Ms Seavers would also then contact the underwriters subscribing to those additional policies to put them on notice of the potential asbestos claims. Often, when the AWP claims committee reviewed the policies, the committee discovered there were coverage issues with the original policyholder; generally these were over the cost clauses or the period and limits of the policy if the policy was not an annual policy.
The building up of the complete coverage profiles for each insured was a complex process. The signing of the Wellington Agreement and the setting up of the ACF enabled the claims committee to resolve virtually all of the coverage disputes regarding the policy wordings for the policyholders subscribing to the ACF. Potential signatories to the Wellington Agreement, as a pre-requisite, had to agree a document known as a 'Schedule D' which recorded all known applicable coverages for each policyholder.
In order to facilitate the distribution of information, the AWP claims committee, or appropriate members of the committee, would pass to Ms Seavers copies of any attorneys' reports which they had received. She would be asked to copy and distribute the report to all the participants on all the slips for all years at issue (in respect of claims presented to insurers), or to either the manifestation or exposure participants who had insured particular insureds (in the case of litigation reports). 
Thus each participant received a copy of the attorneys' report and, importantly, received it as soon as was practicable after receipt of the report by the leaders/claims committee. 
As time went on and the number of reports to be disseminated to the London market increased, the AWP realised that it needed to establish a company through which it could manage administrative matters. The AWP borrowed the Toplis & Harding name to set up Toplis & Harding (Asbestos Services) Limited in 1984. Toplis & Harding (Asbestos Services) Limited in due course became Toplis & Harding (Market Services) Limited to reflect the fact that the AWP's operations had by 1986 expanded to deal with pollution and other health hazards. 
In 1981, following the formation of the AWP, the AWP claims committee, on behalf of the London market, retained Alexander Grant & Company to develop and implement the Claims Information System. The heart of the system was its database. The primary purpose of this database was to provide timely and relevant information to the servicing attorneys. 
The numerous complaints being filed in the US against policyholders were reviewed and analysed. The information from that review was fed into the database, which captured over 40 categories of information for each claim, including:
 claimant name and related parties
 jurisdiction(s)
 all defendants named
 local plaintiff law firm(s)
 employer(s)
 the dates of exposure
 diagnosis/manifestation and death
 smoker data
 settlements, etc.
There were a number of key facts that the AWP claims committee together with the servicing attorneys wanted to capture for each claimant, whether the claim was still pending or settled: for example, the dates on which the claimant was first exposed to asbestos; the manifestation date; the various producers filed against; the type of disease alleged; and the amounts paid both for indemnity and defence.
From the database, a number of reports could be obtained:-

Closed Case Bordereau
A separate report for each insured that listed key claimants' data in all cases that had been closed. 	
Open Case Bordereau
A separate report for each insured that listed key claimants' data in all open cases. 	
Master Claimants' Bordereau
A master list of every claimant on the database. Key data was printed for each claimant together with data about the defendants whom the claimant filed against. 	
Closed Case Summary
A separate report for each insured that contained the total and average indemnity loss during sequential half-year periods. 	
Indemnity Loss Allocation
A separate report for each insured that allocated loss reserves and indemnity losses to policy periods by both exposure and manifestation theories. 	
Defendants Named by Claimant
A report that listed, for each defendant, the number of times that defendant had been named by claimants. 	
Percent. of All Years Exposure
A separate report for each insured that calculated, for each calendar year, the percentage of claimants which alleged loss during that year, under both exposure and manifestation theories. 	
Average Settlement Loss
A separate report for each insured that calculated the average indemnity loss by year and by state. 	
Average Loss/Claimant by Disposition
A separate report for each insured that calculated the average indemnity loss by year and disposition. 	
Average Loss/Claimant by Disease
A separate report for each insured that calculated the average indemnity loss by year and by type of disease. 	

The reports generated were used by the attorneys for the purposes of their year-end reporting including reserve recommendations. The print-outs from the database were sent directly to the AWP office where they were retained for review.

Reserving and Attorneys' Reports
In his witness statement Mr. Rayment explained the basis on which the reserve figures contained in attorneys' reports were compiled and the way in which a claims manager would use those figures in order to enter a reserve figure for outstanding claims in his syndicate's books. 

Johns Manville
Johns Manville was one of the major defendants in the US.
Settlement negotiations involving the London market, Travelers, and the Home Insurance Company took place. In a letter from Manville's lawyer, Mr. Curtis Caton of Heller Ehrman White & McAuliffe in August 1982, Manville suggested that:
"projections suggest that, over time, J-M will suffer 40,000 [asbestos] claims and expend an average of US$30,000 to defend and dispose of each claim. The projected cost totals US$1.2 billion."
The letter went on to suggest that 18% of the day to day costs of Manville's asbestos litigation was attributable to "Old London's years of coverage", and that the cost to London on an exposure basis would be US$200 million. 
The settlement which was ultimately reached in July 1984 involved the payment to Manville of a total of US$315 million, of which the London market paid US$94 million. Mr. Rayment said in his witness statement "The settlement has proved to be a good deal, such was the explosion in claims in the latter part of the 1980's".
It is to be noted that: 
(1) Mr. Caton's letter indicated that London's share of Manville's loss was put at around 18%, and Manville's loss was itself only a proportion of the total asbestos loss. 
(2) Manville's projection of 40,000 claims against it was, as events were to show, a very significant underestimation of the extent of the problem. But this was not foreseen at the time. 
Mr. Rayment cited Johns Manville Corporation as an example of estimates of potential claims proving to be incorrect. In August 1986 the United States Bankruptcy Court for the Southern District of New York signed an order pursuant to which Johns-Manville undertook an extensive campaign designed to provide the maximum amount of publicity, with respect to the confirmation process of the Plan before the court. The campaign provided for national television and radio advertisements, newspaper advertisements in the six leading US and Canadian newspapers and in the largest circulation daily newspaper in each State, the District of Columbia and each Canadian Province. This publicity campaign was designed to inform as many future asbestos claimants as possible of the impact of the Manville reorganisation, upon whatever rights they might have against Manville as Debtor. I refer to the decision of Judge Lifland dated 18 December 1986 and the subsequent appeals. In his judgment dated 19 January 1995 Senior District Judge Weinstein of the United States District Court E and SD New York said:-
"When the distribution plan was confirmed in 1986, it was established that the Trust would receive approximately 83,000 to 100,000 claims over the course of its life into the middle of the next century. To date, the Trust has received approximately 240,000 claims and it is expected to receive hundreds of thousands more."
Manville has continued to receive claims which are now paid from the Manville Personal Injury Settlement Trust. This trust was set up as a result of the Manville bankruptcy proceedings. The number of claims against Manville, including claims administered by the trust, now exceeds 400,000.

Market Knowledge of Asbestos
Although the AWP was a focus of activity and a source of knowledge it was not the only means by which syndicates or companies could make themselves aware of developments in respect of asbestos claims. If syndicates or companies had wanted to ask further questions of the US attorneys, there was no difficulty in doing so. Information could also be obtained from other contacts, for example brokers or reinsureds. In addition, there was a considerable flow of information about asbestos in both the general and specialised insurance press. Periodicals, such as Business Insurance, as well as Lloyd's List which is published daily, were widely read in the market.
As a result of the AWP's efforts and the information that was publicly available, there was nothing that was hidden from the market. Information was freely available to those who had written risks which were subject to asbestos claims; and this information was available, and provided to syndicates, whether they were a major non-marine syndicate which had written a large line on a slip, or a small marine syndicate which had taken a tiny line as part of its incidental non-marine account. The market, whether it took its own steps to find out information or simply waited for information provided by the AWP, was well aware of the developing problem of asbestos during the 1980's.

Reserving by the Lloyd's Market Generally
As the 1980's progressed, the techniques used by the attorneys in providing reserve estimates for known asbestos claims became more sophisticated, not least because of the information that was gathered in the database. This database was ahead of anything else that was available, and was eventually used by the ACF together with data supplied by the policyholders. 
Throughout the Relevant Period the AWP continued to believe that the right approach was to gather together the best available information about the claims made against London market insureds, and establish specific reserves for those claims, based on that information. For most syndicates (and, I assume, London market companies), this claims data was the starting point for their IBNR assessments.
The Lloyd's market was a very competitive market place: each syndicate would keep its own business to itself. The only people in a position to decide whether or not a year should be closed are the syndicate underwriters and their auditors. There were so many variables - for example, what had the syndicate written; at what levels; what were the policy limits; what was its reinsurance protection; had it bought run-off; had it got rollovers or time and distance policies; did it have surplus in its short-tail or other reserves; the underwriter's philosophy and the business plan of the active underwriter etc. - that it is quite impossible for any outsider to form a view. 
The market had coped with Allied Crude, Hurricane Betsy, SMON (a problem arising from Japanese taking too many enteroviaform tablets), Computer Leasing and many other claims. But these and many other problems costing hundreds of millions of pounds had been dealt with and the Lloyd's market had a good profits record over many years. But during the 1980's, the asbestos problem behaved in a way which was quite unprecedented and became much worse than people in the market had anticipated.

The Development of Asbestos-Related Claims
Whilst certain events can now be seen to be key moments (for example the Keene decision), it is easier in retrospect to identify an event as a key development. Mr. Rayment in his witness statement identified the principal reasons why things looked so different at the end of the 1980s and in the early 1990s from the way in which they had looked in the early 1980s, when the problem had been appreciated as significant, but nothing like as serious as it eventually became. The reasons are of course interlinked and there may be others which should be identified.
The starting point is the sheer volume of claims which eventually came to be made. Table 2 illustrates the growth of the problem. 

TABLE 2

THE GROWTH IN THE NUMBER OF ASBESTOS-RELATED PERSONAL INJURY CLAIMS

YEAR 	CUMULATIVE CLAIMS NOTIFIED	SOURCE 	CLAIMS PER MONTH/YEAR 	SOURCE	
Pre 1980	950 cases in total filed in Federal Courts (no figures available for State Courts) 	AR
15.12.94 			
1980 	"8,000 or more cases filed to date"	AR 1.10.80 	100 per month
1,000-1,2000 pa for next 6-8 years 	AR 3.10.80
AR 24.12.80
AR 24.12.80 	
1981 	14,526 at year-end 	Mr. Nelson's statement at panel auditors' meeting 			
1982	"well over 20,000" at year-end 	AR 20.1.83	500 per month 	AR 28.6.82
AR 20.1.83 	
1983	27,548 	AR 14.6.83
C.I.S. figure as at 22 May 1983			

YEAR	CUMULATIVE CLAIMS NOTIFIED	SOURCE	CLAIMS PER MONTH/YEAR	SOURCE 	
1984 	30,000 	AR 1.3.85	5,000 per year projected increase 	AR 1.3.85 	
1985 (pre the Wellington Agreement) 	25,000 is "opening inventory of ACF" 	AR 1.8.88 			
1985 (post Wellington Agreement) 			"noticeable increase" to 8,500 per year (i.e. 700 per month) 	AR 22.8.85 	
1986 	54,000 as total projected asbestos universe at year-end (includes settled claims) 	AR 24.8.87 	1,000 per month in the latter part of 1986 	AR 24.8.87 	
1987 	80,003 as total projected asbestos universe at year-end (includes settled claims) 	AR 24.8.87 	2,000 per month; 3,000 claims filed in August 1987 	AR 24.8.87
AR 1.8.88 	
1988 	98,222 as total projected asbestos universe at year-end (includes settled claims) 	AR 1.8.88 	1,500 per month over the past 10 months 	AR 1.8.88 	

YEAR 	CUMULATIVE CLAIMS NOTIFIED 	SOURCE 	CLAIMS PER MONTH/YEAR 	SOURCE 	
1989 	102,978 (CCR projected universe at year end) 	AR 28.8.89 			
1990 	139,131
(CCR projected universe at year end) 	AR 1.8.90 	3,300 per month in June 1990; projection of 2,200 per month.
13,000 filing in Federal Courts alone 	AR 1.8.90

AR 24.12.94 	
1991 	- 	- 	- 	-	
1992 			2,003 per month for year to 31 May 1992 	AR 24.8.93 	
1993 	218,361 	AR 24.8.93 	2,500 per month for year to 31 May 1993 	AR 24.8.93 	
1994 	250,000 in past 10 years	AR 15.12.94 	24,000 per year for past few years 	AR 24.12.94 	
2000 	450,000	Mr. Rayment 	60,000 per year 	Mr. Rayment (estimate)	

Thus between the Borel decision in 1973 and the beginning of 1981, there were probably something in the region of 8,000 to 10,000 claims in an eight year period. In the period between 1981 and the Wellington Agreement, the filing pattern was (according to an AR dated 1 August 1988) "remarkably steady at 500 new claims per month." The "opening inventory" of the ACF in mid-1985 was about 25,000 claims. In the 18 month period after the Wellington Agreement the rate of claims rose initially to 700 per month and then to around 1000 per month. 
In 1987, the claims rose to 2,000 per month (a fourfold increase in the level of claims pre the Wellington Agreement), and then went up to 3,000 per month, before settling at 1,500 per month for a while. By 1990, this had risen again, so that in the early 1990's the rate was about 24,000 a year; an annual total which was broadly comparable to the entirety of claims in the 10 year period after Borel (1973 to 1983). 
The current rate of claims is around 60,000 a year. The current total volume of claims (including those that have been settled) is approximately 450,000.
These figures show that despite Borel and despite what is on any view a considerable volume of claims over the lengthy period between Borel and the Wellington Agreement, it was only after the Wellington Agreement that the filings of claims increased dramatically. The fact that the ACF dissolved within just three years after the Wellington Agreement, demonstrates that asbestos-related claims did not proceed in the way that producers and insurers thought they would proceed.
The sheer volume of claims defied expectations and has made the problem much more serious and expensive than was anticipated. It was not, for example, an increase in the cost of settling individual claims which caused the problems; the recommended reserving for known claims has in fact stood up very well. Mr. Rayment said in his witness statement - "What caught us, and the rest of the insurance industry, out, was quite simply the unforeseen increases in the number of claims". 
I now turn to consider some of the interlinked reasons why things looked so different at the end of the 1980s and in the early 1990s, from the way in which they had looked in the early 1980s.
At the beginning of the 1980's, there were those who thought that claims brought by asbestos claimants could, to some extent, be successfully defended. The defences thought to be available included: 
(1) that a particular claimant had not suffered a "compensable" injury. This would not, of course, be available where the claimant was suffering from mesothelioma or asbestosis, but was a possible defence where the symptoms were much less serious, such as pleural plaquing and pleural thickening;
(2) that the products produced by various producers were not unsafe. For example, a producer might produce a product which was sealed, such as floor tiles. The argument would be that such products were not inherently dangerous, since they did not release asbestos fibres into the air. Similarly, there were arguments that any problem with the product resulted from the purchaser's failure to use or maintain the product properly;
(3) that the claimant's injury was substantially caused by smoking. The claimants were, in the main, blue collar workers who would in many cases be heavy smokers. Whilst such a defence was clearly not available if the worker did not smoke, or if his condition was unrelated to smoking, it was thought that compensation would be substantially reduced in many cases where smoking could be shown to be a contributing factor.
Later in the 1980's, however, any sense of optimism changed. The attitude of the courts had been shown to be very favourable to plaintiffs. Pleural plaquing and pleural thickening had been recognised in many states as "compensable" injuries. The courts had generally rejected the attempts by producers to dismiss claims, through summary judgment applications, on the basis that insufficient injury had been caused. Similarly, the defences of "safe product" had generally failed to impress juries, particularly when it was shown that a "safe product" had been subject to a process of cutting or alteration which might have released fibres. Reliance upon smoking did have a degree of success in terms of reduction of damages for contributory negligence, but this was counterbalanced by the risks of taking a case through a jury trial.
A further significant difficulty in relation to the availability of defences was presented by the sheer volume of claims that were eventually made. Whereas in the early period it was possible to consider and evaluate each case separately, and resources were devoted by producers and their lawyers to this process, this became increasingly difficult as the volume of claims increased. In the early days, the producers generally had a different attitude to the claims being made against them. They would spend time looking at the merits, and did not want to be seen as a soft touch. They were much more defence oriented. By the end of the decade, however, things had changed. It was simply not possible to examine each claim in depth, particularly since, as time went on, multi-filings on behalf of many claimants became common. Some basic evidence would be required before a settlement offer would be made. But it was not possible or cost-effective to probe the evidence presented by each claimant in great detail, or to seek to prepare evidence to counter the case advanced. It was better to settle; and the purpose of the ACF was to settle meritorious claims without the need for the claimant to resort to litigation.
The result of these developments was that producers became generally less confident that they would achieve defence verdicts. As time went on, some producers who were named as defendants took the view that they could not risk fighting any case, for fear that any defeat would result in them becoming a more popular target: their name would find its way into the plaintiff attorneys' word processors, and they would become an automatic defendant in future cases. Other defendants had already suffered this fate. For example, Keene Corporation had fought and lost cases in the early days. Keene became a major target, and was eventually forced into bankruptcy, even though (according to their senior management) they had only sold about US$700,000 worth of asbestos products in the whole of their corporate existence. 
Those manufacturers who did decide to fight cases found that this strategy was unsuccessful. For example, one manufacturer spent something like US$11 million in defence costs before making any indemnity payment. The ATLA (American Trial Lawyers Association) targeted that company in particular, and succeeded in bringing it to its knees.
At the same time as producers were finding it increasingly difficult to win cases against claimants, the insurance industry was finding it increasingly difficult to obtain any success in the insurance coverage litigation. I refer to Appendix 2 (List of US Cases concerning coverage for Asbestos Losses for the period 1978 - 1988). The debate prior to Keene was whether policies would respond on an exposure or manifestation basis. According to Mr. Rayment for some considerable time afterwards, the Keene decision was regarded as an aberration. The decisions of the US courts became more and more pro-insured. It is said that there was a considerable amount of social engineering, so as to ensure that claimants were left with solvent defendants. The producers had, by the end of the 1980s, far more certainty that their insurance policies would respond, and how they would respond, than they did at the beginning of the decade. The availability of insurance cover, as determined by the courts, meant that the motivation to fight cases became less strong.
The successes achieved by claimants in the asbestos litigation, the difficulty which the producers had in dealing with the volume of claims and the perception that the courts would strive to ensure the availability of insurance coverage so that producers could meet the claims against them, served to encourage the plaintiff bar and fuel further claims. The plaintiff bar knew the jurisdictions which were most likely to prove favourable. There was forum-shopping, with New York and the southern states being regarded as particularly favourable. 
Asbestos-related litigation became a lucrative area for American lawyers. For the first time ever lawyers set up mobile x-ray units at workplaces in order to identify new claimants. The workers would go into the unit and have an x-ray. If this showed any irregularity, such as a shadow, they would be signed up as claimants then and there. This resulted in a large number of individuals, who might otherwise have never brought claims, becoming claimants. As part of this process, the plaintiff bar targeted traditional industries (for example shipyards) in new locations, and also other industries (for example, motor and allied trades and the steel industry and, to a lesser extent, talc manufacturers, tyre manufacturers etc.) which had not initially been targeted. The number of claims per month which the lawyers were ultimately able to generate is reflected in Table 2. 
The number and variety of defendants increased. In early 1982 the London market was concerned with about 14 defendant producers of asbestos products. Further not all of the producers who were defendants in the US had placed, or were understood at that time to have placed, their insurance in the London market. Eventually, 14 companies became something in excess of 250 companies, which were either directly insured or reinsured by the London market. 
As bankruptcy overtook some of the original producer defendants, or as their insurance coverage became depleted or exhausted, the plaintiff bar turned its attention to other defendants, for example installers, building owners and others who might have manufactured, handled or distributed products containing asbestos. In some instances, new defendants only came to light when litigation had commenced, usually through the discovery process. The result was a very significant number of defendants who would never have been thought of as potential defendants in the early 1980's. 
An associated problem which arose from this growth in the number of defendants was that hundreds of millions of dollars' worth of untapped coverage became exposed. As these defendants were very peripheral, no policy exclusions were generally included in their coverage until very late in the day, if at all. This development was the complete opposite of the way in which, for example, DES had developed. With DES, reserves in the early days had been set up in respect of around 30 manufacturers, but in the end it all boiled down to three major defendants.
A related adverse development involved so-called "premises claims" against building owners. Premises claims arise from plants or other working environments where asbestos products were in the fabric of a building providing lagging for pipes etc.. There were two sorts of employees who would typically bring these claims: the first category being permanent employees and the second category being independent workers hired for particular projects. The latter category of workers (premises claimants) was more significant in relation to premises claims. A typical premises claimant would therefore file suit against a number of building owners alleging injury whilst working at a number of sites. Most premises claims reported to date involve either the utility or petrochemical industries, both of whom (i) employed large numbers of workers over many years; (ii) relied upon asbestos insulation within their high-temperature production operations; and (iii) are high profile, "deep-pocket" defendants due to their net worth and extensive insurance coverages, which again probably only had asbestos exclusions in later years, if at all. 
Towards the end of the 1980's (post 1988) Owens Corning, a major producer, adopted a particularly unhelpful strategy which further expanded the class of defendants - their "outreach" programme. They prepared a three volume book containing labels of numerous asbestos products produced by other companies. Owens Corning would ask a claimant whether he recognised any of the labels from his working life. If he did, the companies which manufactured the products recognised would be joined as additional defendants thereby spreading the liability of Owens Corning. An additional 50 or more defendants were added as a result of the actions of Owens Corning, each of which would then look to its own insurance protections. Every time a new insured presented a claim to the London market, it was necessary to track down coverage in respect of that new insured.
The initial focus of the London market was on the low level excess policies. But the volume of claims was eventually such that it pierced those, and went through to higher layer excess policies. Amongst the policies which were eventually impacted were policies written in the late 1970's and early 1980's for insureds (for example, GAF, Johns Manville and Owens Corning) with known asbestos exposure, and other insureds whose asbestos exposure might not have been known when the policies had been written. In addition, it impacted upon reinsurances and retrocessions. The overall impact on reinsurance was not foreseen in the early period.
Asbestos property damage claims also became significant through the 1980's. In the event these claims have not proved to be anything like as significant as seemed possible at one stage, but they were not apparent as a significant problem in the early period. I deal with this factor below.
There was an expectation that as years passed, the dates of claimants' first exposure to asbestos would become later and therefore no longer impact the early years of insurance coverage. The anticipated effect was that not all the coverage in the early years would be exhausted. But this situation has yet to occur. Allied to this point is the fact that the anticipated decrease in the seriousness of illnesses giving rise to claims has not occurred, notwithstanding indications from time to time that such a decline was beginning to occur. 

The Wellington Agreement
When the Wellington Agreement in respect of asbestos bodily injury claims was signed in June 1985 those who had negotiated the Wellington Agreement believed that asbestos bodily injury claims would be run-off in an orderly manner. Greater certainty with respect to the coverage issue had been achieved and it was hoped that costs would be significantly reduced. Mr. Rayment said in his witness statement "Although we believed that this would take some years, the end was now in sight, and the way in which we would reach the end had been put in place. ... No-one foresaw the way in which asbestos claims would take off, as they did, in the years following the Wellington Agreement."
The Wellington Agreement was the product of intensive negotiations between insured asbestos producers and their insurers over the preceding two and a half years. Mr. Robin Jackson, with appropriate authority, signed on behalf of Lloyd's syndicates, with the London market companies signing individually on their own behalf. The objectives for all interests was to develop a more cost effective way in which to handle the underlying tort cases and to resolve the many pending declaratory judgment actions throughout the United States. The negotiations for the Wellington Agreement related in particular to the application of coverage and the numerous attendant policy issues. These were complex in nature and at the time that the Wellington Agreement was signed, there was every indication that a 'triple trigger' would continue to be adopted if pending cases were to proceed. In that environment, insurers had no alternative but to recognise the triple trigger philosophy in their negotiations but at the same time, try to evolve in an orderly manner how loss allocations could be made. 
The Wellington Agreement resulted in the formation of the Asbestos Claims Facility which was a claims handling facility. Each subscribing producer and each subscribing insurer designated the ACF as its sole agent to administer and arrange on its behalf for the evaluation, settlement, payment or defence of all asbestos bodily injury claims against subscribers. Any claim made by a claimant against a subscribing producer was therefore automatically dealt with by the ACF, rather than by the producer concerned.
It is important to note the distinction between the Wellington Agreement and the ACF. The Wellington Agreement regulated the rights and obligations between the subscribing producers and subscribing insurers. Membership of the ACF was capable of termination, whereas other rights and obligations of producers and insurers under the Wellington Agreement continue in perpetuity. One of the significant achievements of the Wellington Agreement was the settlement of the many declaratory judgment actions and coverage disputes between producers and insurers. The producers would not have agreed to settle and dismiss these actions unless they were sure that the settled issues could not be re-opened at some later date. It was therefore important that the Wellington Agreement (as opposed to the ACF) bound the parties forever. Thus, if the ACF was to be dissolved (as in fact occurred), the agreements reached between producers and insurers concerning the settlement of disputes between them and the resolution of various coverage issues which were in dispute, would stand.
The ACF decided whether the claim should be defended or settled and acted accordingly. In the event that it was necessary to disburse any sums, whether by way of settlement, paying compensation as the result of an unfavourable court decision, or in legal costs, the ACF did so and allocated a percentage of such sums to each subscribing producer. The percentage that each subscribing producer had to bear was determined in accordance with the formula set out in appendix A-1 to the Wellington Agreement.
Once each subscribing producer's share had been calculated (its "generic share"), each of that producer's insurers bore a proportion of the liability thus incurred. All subscribing producers contributed to every claim dealt with by the ACF according to their generic share, whether or not they were initially named in the claim or lawsuit commenced by the claimant. The generic share assigned to each producer was based on the historic asbestos claims statistics prior to the establishment of the ACF. Accordingly, no legal costs were wasted on inter-producer, producer/insurer or inter-insurer disputes, because agreement had already been reached as to how coverage would be applied. 
The setting up of the ACF gained the approval of the US judiciary, significantly reducing, as it did, expenditure on legal costs. Prior to the ACF, approximately 1,100 law firms in the United States had been involved in defending asbestos litigation. The ACF immediately reduced this number to around 60, and by 1988 was employing only 55 firms for its legal defence work. Furthermore, the number of cases actually litigated after the Wellington Agreement had been signed was a very small proportion of the total number of claims.
In addition, prior to the ACF, verdicts in favour of the producers against their claimants were obtained in only 28% of all claims that went to trial. The average court award was US$600,000. As a result of the more professional approach adopted by the ACF, by 1988 verdicts in favour of the defence were achieved in 65% of all cases which went to trial and the level of average awards had reduced to US$330,000.
The ACF, in conjunction with the courts, was also responsible for introducing innovative settlement techniques, namely the pleural registry and green card procedure. These were methods by which the Statute of Limitations was suspended for a claimant so that if the claimant developed a "compensable" injury at a later date, he could re-file his complaint.
It should be noted that the mere fact that a producer was not originally named by a claimant was not conclusive of its ultimate liability. If the Wellington Agreement had not been in place, asbestos producers would have continued to name other asbestos producers, not named in the original complaint, in cross complaints. This was a major achievement of the Wellington Agreement, which caused an immediate and dramatic drop in the amount, and costs of litigation. 
Mr. Jim Ayliffe was appointed as London's representative on the Asbestos Claims Facility board of directors. Mr. Rayment was nominated as an ex officio non-voting director. Various members of the AWP, including Mr. Robin Jackson, Mr. Ayliffe and Mr. Rayment, undertook a series of "roadshows" to explain the reasons for signing the Wellington Agreement and creating the ACF. These speeches were made to various sections of the insurance and reinsurance markets. The purpose of these talks was to gain the support of insurers and reinsurers. The support of reinsurers was important because they would be called upon to pay reinsurance claims arising from payments made under the Wellington Agreement.
There are some within the market who feel that the Wellington Agreement and the ACF attracted claims which might otherwise not have been made. There are others who think that it had the effect of merely accelerating claims which would in due course have been made in any event. The one-stop service provided by the ACF proved attractive to the plaintiff lawyers, who were keen to see how efficiently it worked. A similar point might be made in relation to the Center for Claims Resolution, whose figures for future settlements have attracted a degree of publicity.

Asbestos Property Damage

The year to 31.12.81
In October 1980, the AWP was advised of the possibility of claims by property owners, claiming that the value of their buildings was diminished by virtue of the inclusion of asbestos, and that such claims had a potential value which could be very substantial. They suggested that property damage claims should be monitored separately. In April 1981 insurers at interest were advised of potential property damage claims by schools districts based upon the necessity for retrofitting non-asbestos products in order to make school buildings once again "safe". There were no recommendations of any specific reserves, whether precautionary or otherwise. The claims which were being brought at that stage, were the bodily injury claims, and this was very much the focus of the attorneys' reports that were received. Property damage was an area which might develop in the future, but which had not yet given rise to any claims activity of note.

The year to 31.12.82
An order was made by the US Environmental Protection Agency in May 1982 which required all schools and similar public buildings constructed prior to January 1979 to be tested within 12 months to determine the presence of friable asbestos. There may have been isolated instances of property damage claims before this order, but this was the origin of the bulk of the subsequent property damage claims, especially those relating to schools.
Whilst this order alerted insurers to the potential for an increase in underlying claims against asbestos building product manufacturers, the London market's initial response was to question whether liability would be established at all. Insurers, both in the US and the London market, did not accept that there was liability under their policies of insurance. There was a question as to whether the claims were really in the nature of "property damage" at all, and whether there had been an "accident" or "occurrence". In addition, even if liability was established, the London market considered, for the purposes of coverage, that only a single date of loss would apply, being either the spread date the product was installed or the date that damage was discovered. Therefore, the market rejected a Keene type spread impacting all policies from installation to discovery.
As a result of the E.P.A. order, two class actions in May 1982 were filed in the Court of Common Pleas in Philadelphia, Pennsylvania on behalf of schools and other public buildings in Pennsylvania.
In the 1982 year-end general market report produced by US attorneys in January 1983 (addressed to the Chairman of the AWP and subsequently circulated to the market), the market was advised that it was likely that considerable activity would develop with regard to damage existing in buildings which incorporated asbestos and that substantial questions arose as to the extent to which any coverage was afforded by the policy wordings and the occurrence date of any coverage that was found to exist. The AWP was to continue to monitor these claims, but the attorneys did not think it appropriate to recommend any specific reserves for property damage claims.

The year to 31.12.83
During 1983 the London market was made aware of additional property damage filings. US attorneys reported in June 1983 the filing of two actions against Dana Corporation. One action was brought on behalf of all schools in Pennsylvania. A second national complaint relating to over 110,000 public and private schools was filed. The complaint was against 50 defendants. The attorneys' recommendation, in relation to Dana, was that underwriters maintain the file without reserve for loss, and that US$2,500 be reserved for their fees and expenses. 
In the main, cases were filed against five defendant manufacturers. By the end of 1983, over 35 actions had been filed by various schools districts in various jurisdictions.
In their year-end reports, London market counsel recommended precautionary ground up reserves for some manufacturers. US$100,000 per year of account was the recommendation in respect of one assured. US$500,000 was recommended in respect of a specific property damage claim against another assured. All property damage precautionary reserves were allocated in addition to reserves for bodily injury, after the bodily injury reserves had been applied. 
Two assureds filed coverage litigation actions against the London market in late 1983, in Cook County, Illinois and in Los Angeles, California respectively. In a general market letter (in January 1984) for the 1983 year, US attorneys emphasised the importance of achieving a uniform approach within the London market relating to the coverage issues for the attachment of building claims. Advice was obtained from lawyers representing the manifestation and the exposure underwriters in the California Co-ordinated proceedings as to the appropriate trigger for any coverage. Copies of their letters of advice were circulated with the general market letter. Both firms recommended that the appropriate date, for which the market should argue, was the date of discovery of the "damage." As a consequence the market was able to (and in due course did) present a united front on this issue.
In the meantime, the manufacturers were defending the underlying cases vigorously. The typical allegations were: (i) negligence; (ii) strict products liability; (iii) fraud and conspiracy; (iv) unjust enrichment and restitution; and (v) trespass/nuisance. The typical defences were: 
(i) product identification, i.e. the manufacturer would contend that his product had not been installed in the building;
(ii) economic loss, i.e. that there was no physical damage to the property and hence no tortious liability;
(iii) no risk/no hazard, i.e. that the asbestos product had been, or remained, safe;
(iv) statutes of limitations; and 
(v) statutes of repose.

The year to 31.12.84
During 1984 there was a continuing increase in the number of property damage filings against producers.
London market attorneys increased precautionary reserves to US$1million per year of account on three assureds and to US$200,000 on certain other accounts.

The year to 31.12.85
In August 1985, US attorneys reported that a manufacturer had successfully defended a schools district case in Tennessee, although they cautioned against drawing "unwarranted conclusions". They also reported the outcome of Lac D'Amiante du Quebec vs. American Home in the District Court of New Jersey. The judgment adopted a triple trigger theory of coverage. The coverage was spread from installation until discovery or removal of the asbestos-containing product. The case involved both bodily injury and property damage. The judgment was appealed.
London market attorneys continued to monitor the increasing underlying claims. They recommended that the precautionary reserves be increased to US$1,250,000 ground up per policy year for the three major defendants. 

The year to 31.12.86
The Asbestos Hazard Emergency Response Act was passed in 1986. As a result of this legislation, the E.P.A. undertook a substantial review of schools and other public institutions in the US.
US attorneys reported in September 1986, a degree of success on the part of one assured in dismissing property damage claims.
No further coverage decisions were made in 1986 and the Lac D'Amiante du Quebec vs. American Home decision was still under appeal. London market attorneys continued to monitor underlying claims. The number of filings was increasing and the attorneys recommended reserves of US$5million per year of account for the three major defendants where policy limits deemed it appropriate. These reserves were no longer precautionary, but were recommended reserves. The attorneys also recommended increases in reserves, albeit to a lesser degree, in respect of some other defendants. For example, instead of their previous precautionary reserve of US$200,000, they recommended a US$200,000 reserve per year in relation to one assured, where the policies were not otherwise exhausted by bodily injury claims.

The year to 31.12.87
US attorneys' August 1987 report contained a detailed discussion of the developments relating to asbestos property damage. Producers had had a degree of success in resisting claims, but some adverse verdicts had been sustained by four manufacturers. By August 1987 there were 150 pending property damage lawsuits against producers and between 50 and 100 additional notices of demand. Judgment had been given in favour of insurers in a further coverage action, USF&G vs. Wilkin. The court had held that the claims against the producer were not in respect of property damage, but economic loss, and that installation of asbestos in a building was not an "accident". This decision was, however, subject to appeal.
In view of the increasing activity in relation to property damage claims, and the availability of more information about these claims, the annual reserving meeting held between the AWP's representatives and two firms of US attorneys resulted in a different and more detailed approach to reserving for the known claims. Gross removal costs of US$9,242,822,000 were calculated, but it was felt appropriate to discount this overall figure to reflect the uncertainties; for example, as to whether liability would be established against the producers and by the producers against insurers. This resulted in reserves being calculated on the basis of ground up losses totalling US$2.5 billion.
It is important to emphasise that these were ground up loss figures, that is, the loss to the insured from the ground up. It did not follow that Lloyd's, or the London market, would need to reserve for the full amount of US$2.5 billion in respect of these producers. The amount to be reserved for any particular producer depended upon various factors, including, for example, the deductibles and limits of the policies written and whether or not any particular policy had already been reserved fully for bodily injury claims. In addition, of course, the market had settled the claims with Johns Manville in 1984 on its 1950's and 1960's coverage.
The recommended reserves were spread over the policy years involved in each account and thus allowed for a decision, adverse to the London market's position, on the issue of whether the loss attached at the date of discovery.
These reserves represented a very substantial increase over what had been recommended in previous years.

The year to 31.12.88
In 1988, it was decided that the servicing attorneys should issue separate general market overview reports in respect of property damage and bodily injury, instead of the combined report previously issued. A detailed 20 page report dealing with property damage claims was issued in July 1988, and this was circulated to the London market in the usual way. The market was advised that there were at least 209 separate actions pending against major insureds of the London market. These actions included 8 class actions (2 certified, 6 pending). Three further insurance coverage decisions were rendered in 1988 subject to appeal or final adjudication. These were Pittsburgh Corning vs. Travelers - Eastern District of Pennsylvania; W.R. Grace vs. Continental Casualty - Eastern District of Texas; and Carey Canada vs. Celotex vs. Aetna - District of Columbia.
The trial court in Pittsburgh Corning vs. Travelers held that the presence of asbestos in buildings did constitute property damage, as the asbestos became part of a finished product and resulted in the diminution in the value of the building. The decision on trigger of coverage was that the property damage occurred only when the presence of the asbestos material had been discovered and the market value of the property declined. In contrast, the decision in W.R. Grace vs. Continental Casualty adopted a trigger from installation to removal and it appeared that Carey Canada was likely to be decided in the same way.
Further studies had been conducted following the 1986 AHERA statute. The results of these studies were issued in 1988. The statistics showed that 733,000 public and commercial buildings (defined as all buildings other than state and municipal buildings and school buildings or residential buildings with fewer than 10 units) contained friable asbestos. The EPA estimated that it would cost some US$51billion to take remedial action in respect of all such buildings.
In light of the above, at year-end 1988 the London market's attorneys provided 
insurers with a more comprehensive reserve methodology. This resulted in the reserves increasing substantially - particularly for the three major target defendants.
As each property damage defendant had identifiable products, separate percentage allocations of reserves were used for school buildings and public and commercial buildings. A combined total of US$4billion was recommended - US$2billion for schools and US$2billion for non-schools.
Reserves were recommended on a modified continuous trigger approach, as a recognition of the mixed coverage trigger decisions. Reserves were allocated to years of coverage commencing with the first effective date of coverage or involvement with a product containing asbestos and ending no later than 1983. 1983 was the cut-off date as discovery should have taken place by that date. On analysing the underlying claims' installation to discovery dates, it was recognised that a higher percentage of claims would fall to the later years.
According to Mr. Rayment the reserves set at the end of the 1988 year-end have held up very well. "Looking back from today's perspective, I can say with some confidence that the ultimate ground up property damage losses to the various insureds will be within the figures which were used for reserving purposes at the 1988 year-end."

Asbestos Bodily Injury Claims Compared With Asbestos Property Damage Claims, DES and Agent Orange
It is useful to compare the way in which asbestos bodily injury claims have developed, with the way in which some other long-tail claims have developed. Asbestos property damage claims, DES and, to a lesser extent, Agent Orange, are examples of claims which had a very serious loss potential, but which ultimately proved containable in a way that asbestos bodily injury claims have not.

Asbestos Property Damage
Asbestos property damage claims had a very serious potential due to the sheer number of buildings with a potential asbestos problem. In the event, although the market has had to pay significant sums in respect of these claims, the problem did not take off in the way that bodily injury claims did and indeed has now diminished. One of the reasons for this is that the EPA eventually decided that building materials containing asbestos already in place, if undisturbed, should usually remain in place in schools and other public buildings. Removal of asbestos was therefore not required if it was in good repair, since non-friable asbestos, or enclosed asbestos, was not considered a significant health risk. The EPA initially required the removal of asbestos from buildings. After lobbying by a group of producers, the EPA changed its position.
There have been limited additional property damage filings in the last few years, and according to Mr. Rayment it is very unlikely that there will be any significant new filings in the future, not least because of time-bar problems (although time-bars do not apply to government claims). Mr. Rayment believes that the overall reserve figure of US$4 billion in 1988 will hold good.

DES
Diethylstilbestrol was a drug prescribed by doctors for the treatment of certain pregnancy disorders, primarily the prevention of miscarriage. The drug was prescribed to approximately 2,000,000 women from the early 1950's. The drug continued to be prescribed until the US Food and Drug Administration banned it in 1971. When DES claims were first made, the London market was advised that approximately 300 companies might have manufactured the drug. The principal manufacturer of the drug was Eli Lilly and Co., whose market share was substantial. Other principal manufacturers included the Upjohn company and E.R. Squibb and Sons Inc..
The DES claimants filed actions throughout the United States. In every case, the claimant alleged symptoms first manifesting many years after the initial exposure to, or use of, DES. DES claims were often grouped by "generation". The claims brought by the women who ingested DES were known as "first generation claims". "Second generation claims" were those made by the off-spring of the first generation mothers. "Third generation claims" were the claims of the grandchildren of the first generation mothers. The injuries alleged were often serious and ranged from various cancers to birth defects.
The claims gave rise to two theories of attachment: "ingestion" and "manifestation". There was, as with asbestos, a conflict within the insurance industry, which led the major DES manufacturers to instigate declaratory judgment actions against their insurers. In 1982, Eli Lilly commenced declaratory judgment actions against their domestic and foreign insurers covering the years 1942 to 1976, seeking a continuous trigger of coverage based on Keene. The District Court for the District of Columbia found in favour of Eli Lilly and applied modified multiple-trigger allocation. Despite a number of appeals, the judgment was always upheld.
Following the various rulings, a settlement agreement was reached with Eli Lilly. The agreement was signed in November 1987, and was the result of more than two years' complex negotiations between the London market, domestic insurers and Eli Lilly. 
The DES problem cost a substantial amount of money, but there proved to be a limited number of defendants, far fewer than the 300 originally identified, and indeed than the 30 for whom reserves were established. In the end it centred on three major manufacturers. In addition, despite the very wide pool of potential plaintiffs, involving three generations, the plaintiff bar generally did not focus on DES as much as it did on asbestos (although there were some specialist firms which did deal with DES claims). Unlike the asbestos claimants, the DES claimants did not have well-organised unions to organise them and fight their corner. 

Agent Orange 
Agent Orange was a phenoxy herbicide developed in the early to mid 1960's. Its primary purpose was to destroy broad leaf flora. Agent Orange was developed for and sold exclusively to the United States army. It was first deployed in the Vietnam War in approximately 1962. Its usage was stopped in 1971. The army commissioned a number of chemical companies, which included Dow Chemical, Monsanto, Hercules, Diamond Shamrock and Uniroyal, to produce Agent Orange. In 1970, with environmental concerns growing, questions arose regarding the safety of the dioxin produced as a by-product of Agent Orange. As a result, thousands of veterans instituted claims against manufacturers of Agent Orange and the US government, alleging bodily injury. Litigation began with the filing of approximately 900 separate bodily injury lawsuits in various Federal and State jurisdictions throughout the United States. The claims were consolidated in a class action heard by federal judge Jack Weinstein, who took an active role and encouraged the settlement of these claims. Thus, the bulk of the Agent Orange claims were resolved and Agent Orange manufacturers do not appear to face substantial future liability. The settlement involved the payment of US$180 million on behalf of the various manufacturers.
As with DES, there were only a limited number of defendants. In addition, the claimant universe for Agent Orange claims was much smaller than for asbestos. This again resulted in the plaintiff bar not focusing on these claims to the same extent as asbestos. 

Impact on other Insurers
Companies in London and the United States were also severely affected by asbestos-related claims. There were a number of company representatives who participated, over the years, in the AWP: Mr. John Heath from Weavers, Mr. Alan Taylor from Turegum, Mr. Tony King from Orion and Mr. Jack Webb from Andrew Weir. None of these companies remains in business; they, together with a large number of other companies have gone into run-off, administration or liquidation as a result of a combination of problems, asbestos being a significant contributory factor. A brochure produced by PricewaterhouseCoopers ("Business Recovery Services Insurance Solutions Report 1999") illustrates the adverse impact of asbestos (usually in combination with pollution) on companies such as Andrew Weir Insurance Co. Ltd., Black Sea and Baltic General Insurance Company, Bryanston Insurance Co. Ltd., Fremont Insurance Company (UK) Ltd., the KWELM companies, North Atlantic Insurance Co. Ltd., Orion, Trinity Insurance Co. Ltd., and United Standard Insurance Company Ltd. 

17. DIFFERING VIEWS AS TO THE LIKELY OUTCOME OF ASBESTOS-RELATED CLAIMS. THE WRITING OF RUN-OFF CONTRACTS
Differing views as to the likely outcome of asbestos-related claims were held in the Lloyd's market (and elsewhere) in the late 1970s and early 1980s. One illustration of this is found in the fact that Outhwaite, Merrett, Meacock and other syndicates wrote a number of run-off contracts. A run-off contract is a policy of reinsurance by which a syndicate or insurance company is reinsured, subject to the terms of the policy, against outstanding and potential future liabilities, claims and expenses in respect of business written into past underwriting years or into such past years of account as are specified in the policy. Such an excess of loss reinsurance contract may provide the reassured with protection which is unlimited both in aggregate amount and in time and which covers the reassured's whole account or a defined part of it.
The first known run-off policy is believed to have been written in 1963, when the Committee of Lloyd's sponsored what was in effect a salvage operation to protect a failed syndicate, the Roylance syndicate. More commonly, but still rarely, in later years, run-off policies were placed in respect of syndicates which continued, but where the underwriter had retired or died. Run-off policies were also sometimes purchased for occasional housekeeping and general management reasons (see the Freshields' Report of June 1988). According to a Winchester Bowring note dated November 1979, Winchester Bowring placed about 25 run-off reinsurances during the mid-1970's.
I refer to Mr. Kellett's evidence about (i) the reinsurance he purchased from Mr. Posgate in respect of computer leasing risks and (ii) the overdue market.
The run-off contracts written by the Outhwaite syndicates 317/661 are set out in Table 3 below. According to the Freshfields' Report, of some 1600 Names on the Outhwaite 1982 year, about 345 were working Names.

TABLE 3

OUTHWAITE RUN-OFFS (1974-1982 YEAR OF ACCOUNT)

Reinsured (Syndicate/ Insurance Company 	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Norman (917) 	1974 	Outhwaite: 12.5% 	US$0m (unlimited)		1967 + prior 	1/1/74 	Oct 1974 							
Attenborough (531) 	1975 	Outhwaite: 19.16% 	US$0m (unlimited)		1966 + prior 	1/1/74 	Dec 1974 							
Bussell (870) 	1975 	Outhwaite: 9.13% 	US$0m (unlimited)		1968 + prior 	1/1/74 	Oct 1974 							
Sampson (783) 	1975 	Outhwaite: 100% 	US$0m (unlimited)		1966 + prior 	1/1/74 	Dec 1974 							
Wishart (165/151) 	1975 	Outhwaite: 90% 	US$0m (unlimited)		1968 + prior 	1/1/75 	Jun 1975 							
Lane (479) 	1976 	Outhwaite: 100% 	US$0m (unlimited)		1961 + prior 	1/1/76 	May 1976 							
Hutton (720/555) 	1977 	Outhwaite: 100% 	US$0m (unlimited)		1970 + prior 	1/1/75 	Oct 1975 							

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Blackmore (677) 	1977 	Outhwaite: 50% 	US$0m (unlimited)		1968 + prior 	1/1/77 	Jan 1977 							
Goldring XL 	1977 	Outhwaite: 100% 	US$0m (unlimited)		1962-1967 	1/7/77 	Jul 1977 							
Kellett 	1977 	Outhwaite: 100% 	US$0.272m (unlimited)			1/1/77 	Jun 1977 	A.W. Knott Ltd 			No 			
Provincial Ins. 	1978 	Outhwaite: 50%

Merrett: 50% 	US$0m (unlimited)		1968 + prior 	24/5/78 	May 1978 							
Price (164) 	1979 	Outhwaite: 32.79% 	US$0.25m
(US$0.25m limit)		1968-1975 	1/12/78 	Jun 1979 							
Universal 	1980 	Outhwaite: 50%

Merrett: 50% 	US$0m (unlimited)		1968 + prior 	1/1/80 	Jun 1980 							
Price (164) 	1980 	Outhwaite: 25% 	US$0.5m 
(US$0.5m limit) 		1968-1975 	1/12/78 	Sept 1980 							
Ryan (295) 	1981 	Outhwaite: 25% 	US$0.9899m
(US% 0.5879m limit)		1978 + prior 	31/12/80 	May 1981 							
Desert Ins 	1981 	Outhwaite: 9.9% 	US$0.5145m (US$0.32m limit) 		1971-1981 	31/12/81 	Aug 1981 							

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Hobbs (737)	1982 	Outhwaite: 64.52% Cassidy Syn.No.582: 19.35%
Hardcastle Syn. No.704: 16:13%	£100,000 (unlimited) 	£85,000 + US$185,000 +CAN$5,000 	1958 + prior 	1/1/77 	Jun 78 	Winchester Bowring 	Non-Marine 	No: 33.98% of Syn.964's 1958 apr years of account reinsured by the cedant 	No 	No 		
Bishopsgate 	1982 	Outhwaite 32%
Kellett Syn.No.994: 32%
Vernon Syn.No.947:
4.8%
Miles Syn.No.391: 2.4%
Drysdale Syn.No.43: 28.8%	£1,129,200 (unlimited) 	£875,000 	(i) 1972-1977 (H.S. Weavers)
(ii) 1966-1975 (C.R. Drivers) 	1/1/80 	Feb 80 	Fielding & Partners/Bain Dawes 	Mainly Non-Marine 	No: the cedant was reinsured i.r.o. their share of (i) Weaver Agencies 1972-1977.
(ii) C.R.Driver 1966-1975 	No 	Yes 	Kellett reinsured his line with Outhwaite in April 1982, retaining £500,000 exposure 	
Cockell (347) 	1982 	Outhwaite: 100% 	US$12m (unlimited) 	US$1.35m 	1970 + prior 	1/1/81 	Aug 81 	Winchester Bowring 	Non-Marine 	Yes 	Yes: held for cedant 	No 	Award of Lord Wilberforce as Umpire and MT Evennett and MS Freeman as party-appointed arbitrators 	
Birrell (27) 	1982 	Outhwaite: 100% 	US$330,000 (unlimited)	US$55,000 	1970 + prior 	1/1/81 	Aug 81 	Winchester Bowring 	Incidental Non-Marine 	Yes 	Arbitration commenced 	Yes 		
Thomson (484) 	1982 	Outhwaite: 100% 	US$9.25m (unlimited)	US$1.1m 	1975 + prior 	1/1/81 	Sept 81 	Winchester Bowring 	Non-Marine 	Yes 	Arbitration commenced 	Renegotiated 		

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Whittall (620)	1982 	Outhwaite: 100% 	US$16m (unlimited)	US$550,000 	1978 + prior 	1/1/81 	Oct 81 	Winchester Bowring 	Incidental Non-Marine 	Yes 	No 	Yes 		
Hampton (179) 	1982 	Outhwaite: 100% 	£1.25m (unlimited) 	£250,000 	1959-1968 	1/1/81 	Nov 81 	Butcher Robinson & Staples Ltd. 	Non-Marine 	Yes 	Yes: held for cedant 	No 	Award of Simon Tuckey QC. For subsequent litigation see Lark v Outhwaite [1991] 2 Lloyd's Rep 132	
English & American 	1982 	Outhwaite: 100% 	US$8m (unlimited) 	US$1.25m 	1975 + prior 	1/7/81 	Nov 81 	Winchester Bowring 	Primarily Non-Marine 	No: the reinsurance was to indemnify the cedant for losses on a number of specified accounts	No 	Renegotiated 		

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Fireman's Fund	1982 	Outhwaite: 50%
Merrett Syn.No.417/421:
50% 	US$35m (unlimited) 	US$6,359,552 	1969 + prior 	1/1/74 	Nov 81 	C.T.Bowring & Co. 	Non-Marine 	No: reinsurance i.r.o. cedant's share of complete portfolio run-off for the Sturge syndicate for the 1969 and prior years (cedant's share being 50% i.r.o. 1966 apr and i.r.o. 1967, 1968 and 1969 50% of total paid amount of $27m and 80% of settlements over that amount)	Arbitration commenced 	Renegotiated 		
Smith (660) 	1982 	Outhwaite: 100% 	US$4m (unlimited) 	US$300,000 	1978 + prior 	1/1/81 	Dec 81 	Winchester Bowring	Non-Marine 	Yes 	No 	Renegotiated 		
Stewart (15) 	1982 	Outhwaite: 100% 	US$6.45m (unlimited) 	US$550,000 	1976 + prior 	1/1/81 	Dec 81 	Winchester Bowring	Non-Marine 	Yes 	Arbitration commenced 	Renegotiated 		
Cowdy (763) 	1982 	Outhwaite: 50%
Posgate Syn.No.126: 30%
Posgate Syn.No.701: 20% 	US$800,000
(unlimited)
(US$5m limit) 	US$420,000 	1979 + prior 	12/1/82 	Jan 82 	Hoveringham Howard/T. Clowes (Insurance Brokers) Ltd.	Incidental Non-Marine 	No: "asbestosis only" 	Litigation commenced 	Renegotiated 		
Wrightson (90) 	1982 	Outhwaite: 50%
S.A. Meacock: 20%
Retained: 30% 	US$26,969,321 (unlimited) 	US$1.54m 	1974 + prior 	1/1/81 	Jan 82 	Winchester Bowring 	Non-Marine 	Yes 	Arbitration commenced 	Renegotiated 	Arbitration in respect of Meacock's 20% held in favour of cedant 	

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Stewart (16)	1982 	Outhwaite: 100% 	US$1.5m
(unlimited) 	US$575,000 	1978 + prior 	1/1/82 	Feb 82 	Winchester Bowring 	Incidental Non-Marine	Yes 	Arbitration commenced 	Renegotiated 		
Lawrence (362) 	1982 	Outhwaite: 66.67%
Meacock Syn.No.727: 33.33% 	US$55m (unlimited) 	US$2m 	1978 + prior 	1/1/82 	Mar 82 	Winchester Bowring 	Non-Marine 	Yes 	No 	Yes: commuted 	Dispute with Outhwaite settled in December 1989 for 66.67% of US$62.8m payable in 3 instalments. 
Dispute with Meacock settled subsequently – terms confidential.	
Price (164) 	1982 	Outhwaite: 20%
Kellett Syn.No.994: 25% 	US$1m
(US$1m limit)	US$335,000 	1977 + prior 	1/12/78 	Mar 82 	Alwen Hough & Johnson Ltd. 	Non-Marine 	No re: liability business classified under a particular risk code 	No 	No 		

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Harris (947) 	1982 	Outhwaite: 50%
Posgate Syn.No.126: 30%
Posgate Syn.No.701: 20%	US$20m (unlimited) 	US$2.25m 	1976 + prior 	01/1/82 	Apr 82 	Morgan Read & Coleman Ltd. 	Non-Marine 	Yes 	No 	No 		
MacKinnon (60) 	1982 	Outhwaite: 50%
Kellett Syn.No.994: 50% 	US$1,870,662
(US$625,000 limit)	US$150,000 	1976 + prior 	1/1/82 	Apr 82 	Wigham Poland Reinsurance Brokers 	Incidental Non-Marine 	Yes 	No 	No 		
Kellett (iro Bracey) (993) 	1982 	Outhwaite: 100% 	£500,000 (unlimited)
(combined) 	£110,000
(combined) 	1968 to 1976 	1/1/81 	Apr 82 	Morgan Read & Coleman Ltd. 	Non-Marine 	No: the Cedant was reinsured i.r.o. their 33.33% share in a run-off of the 1968-1976 years of account of Bracey Syndicate 917	No 	No 		
Harris (947) 	1982 	Outhwaite: 33.33%

Posgate Syn.No.126: 40%

Posgate Syn.No.701: 26.67% 	US$2m (i.r.o items processed in 1982, 1983 & 1984)
(unlimited) 	US$750,000 	1976 + prior 	1/1/82 	Apr 82 	Morgan Read & Coleman Ltd.	Non-Marine 	Yes 	No 	No 		

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Kellett (iro Bishopsgate) (993)	1982 	Outhwaite: 100% 	£500,000
(unlimited)
(combined) 	£110,000
(combined) 	(i) 1972 to 1977 (H.S. Weavers)
(ii) 1966 to 1975 (C.R. Drivers) 	1/1/82 	Apr 82 	Morgan Read & Coleman Ltd. 	Primarily Non-Marine 	No: the Cedant was reinsured i.r.o. their 32% share in a run-off covering the involvement of Bishopsgate Ins. Co. in (i) Weavers Agencies 1972-77 and 
(ii) C.R. Driver 1966-75	No 	Yes 		
Davies (554) (Dolling-Baker) 	1982 	Outhwaite: 50%
Merrett Syn.No.417: 40%
Merrett Syn.No.421: 10% 	US$9,138,222 (unlimited) 	US$975,000 	1978 + prior 	1/1/82 	May 82 	Winchester Bowring 	Non-Marine 	Yes	No 	Renegotiated 		

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Sells (10)	1982 	Outhwaite: 100% 	£500,000 (unlimited) 	£525,000 	(i) 1966 + prior (Tardiff)
(ii) 1968 + prior (Bussell)
(iii) 1967 + prior (Norman) 	1/1/82 	Jul 82 	Morgan Read & Coleman Ltd. 	Non-Marine 	No: the Cedant was reinsured i.r.o. (i) their 100% share in a run-off of the Tardiff syndicate
(ii) their 5.48% share in a run-off of the Bussell syndicate 
(iii) their 15% share in a run-off of the Norman syndicate	No 	No 		
Penn (634) 	1982 	Outhwaite: 50%
Meacock: 30% 	US$500,000
(US$1m limit)
US$650,000
(US$1m limit) 	US$250,000

US$232,500 	1969 + prior 	1/1/82 	Jul 82

Dec 82 	Ropner Insurance Services Ltd. 	Incidental Non-Marine 	Yes	No 	No 		

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Skey (219) (R.A. Edwards) 	1982 	Outhwaite: 50%

Balance retained 	US$2.865m (unlimited) 	US$800,000 	1967 + prior 	1/1/82 	Aug 82 	Winchester Bowring 	Non-Marine 	Yes 	No 	Renegotiated 	Small additional premium paid and payments restructured but policy remained unlimited	
Weir 	1982 	Outhwaite: 25% 	US$1m
(US$1m limit) 	US$450,000 	1965 + prior 	1/1/82 	Sept 82 	Ropner Insurance Services 	Non-Marine	Yes 	No 	No 		
Weir 	1982 	Outhwaite: 25% 	US$5m
(US$5m limit) 	US$1.25m 	1972 + prior 	1/1/82 	Sept 82 	Ropner Insurance Services Ltd.	Incidental Non-Marine 	Yes 	No 	No 		
Towers (679) 	1982 	Outhwaite: 33.33%

Meacock: 25% 
N.T.U. 	US$12m

US$12m
(unlimited)
or
US$15m
(unlimited) 	US$1m
US$1.5m
US$1.1m 	1974 + prior 	1/1/82 	Oct 82 	Winchester Bowring	Incidential Non-Marine 	Yes 	No 	Yes 		

Reinsured (Syndicate/ Insurance Company	Signing Year 	Percentage reinsured by Outhwaite & Ors 	Excess and Limits 	Premium 	Years of Account Reinsured 	Inception Date 	Date
Accepted 	Broker 	Marine/Non-Marine/
Incidental Non-Marine Account Being Ceded 	Whether or not Whole Account 	Whether or
Not Arbitrated 	Whether or
Not Commuted 	Other Information 	
Simmons (469)	1982 	Outhwaite: 50%

Meacock: 25%
N.T.U.

Continental: 50% 	US$3m
(unlimited)
US$3.5m
(unlimited)
or
US$4m
(unlimited)
US$3m (US$2m limit) 	US$650,000

US$700,000
or
US$550,000 	1978 + prior 	1/7/82 	Oct 82

Nov 82 	Winchester Bowring 	Non-Marine 	Yes 	No 	No 		
Price (164) 	1982 	Outhwaite: 33.33% 	US$2m (unlimited) 	US$2m 	1977 + prior 	1/7/82 	Oct 82 	Carter Wilkes & Fane Ltd./Golding Collins	Non-Marine 	No: asbestosis losses only 	Yes 	No 		
Allied Publications Mutual 	1982 	Outhwaite: 43.48% 	£2m
(unlimited) 	£75,000 	1982 + prior 	1/1/82 	Nov 82 	Winchester Bowring	Non-Marine 	No 	No 	No 		
Between June 1978 and June 1982 eleven run-off contracts were written in whole or in part by Merrett syndicate 418/417 (and in some cases in part by Merrett syndicate 421). Particulars of the eleven run-off contracts are set out in table 2 at page 416 of the Merrett judgment, to which I refer.
Table 3 above includes references to run-off contracts written in part by the Meacock syndicate and other syndicates.
There was litigation/arbitration relating to a number of the run-off contracts referred to above. The column headed final outcome in Table 3 above (and the column headed final outcome in table 2 in the Merrett judgment) show the result of such litigation/arbitration and also the result of settlements arrived at between the parties.
It is to be noted that a significant number of the 33 individuals accused of fraud and their families were Names on the open years of the Outhwaite and/or Merrett syndicates.
The fact that Outhwaite, Merrett and Meacock (and others) wrote run-off contracts which were exposed to asbestos-related risks shows that differing views as to the likely outcome of asbestos-related claims were held in a Lloyd's market in the late 1970s and early 1980s. The Merrett syndicates had access to the extensive knowledge of Mr. Jackson and Mr. Ayliffe.

18. OPEN YEARS
As reported in the Chairman's statement in the 1987 Globals, at the end of December 1987 there were 76 syndicates with a total of 120 years of account left open. Problems associated with asbestos and pollution risks, together with other US liability business, appear to account for the vast majority of the run-off years.
According to the Report of the Rowland Task Force 'Lloyd's: a route forward' January 1992:-
"In 1980 there were 32 syndicate years which had not been able to close at the end of the normal three-year accounting period. By the end of 1990, 97 syndicate years had been left 'open' in this way. These 97 years relate to 53 syndicates, some having up to 5 years of account in run-off. Approximately 17,500 Names have at least one open year of account; amongst these 17,500 Names, the average Name has three to four open years of account."
Exhibit 16 to the Rowland Task Force Report (Trends in Run-Off Accounts (Open Years)) contains a table showing the number of syndicates and of years in run-off for the even years from 1974-1990 inclusive. 
Exhibit 1 to the Open Years Panel Report shows the numbers of years in run-off for all the years from 1970-1991 inclusive. It does not show the number of syndicates in run-off. Exhibit 6 to the Open Years Panel Report gives a breakdown by principal cause of the years of account in run-off as at December 1991. According to Exhibit 6 the stamp capacity of run-off years by principal cause at December 1991 was:-
Asbestos/Pollution 60%
LMX Spiral 19%
PSL/EPP 7%
Catastrophe 5%
Professional Indemnity 4%
No Stamp Capacity 3%
Other 2%.
"Your Committee is concerned that two recent catastrophe losses, the October storm and Piper Alpha seem to have been off-loaded onto the reinsurance market and then to be disappearing. As we are dealing with the largest non-marine and marine physical damage losses the insurance world has ever seen, we would expect Lloyd's underwriters to be paying rather more than what appears to be a few fairly modest retentions. Your Committee feels that we need to go beyond the rather comforting letters which managing agents have sent out on Piper Alpha. The attached questionnaire is designed, after considerable market consultation, to find out where these two losses, and Alicia, are finally going to rest so that our members' agents get information which they need for themselves and their Names. Please therefore complete the questionnaire for each of your managed syndicates, adding explanatory notes where necessary, and send it as soon as possible...to your members' agents. ..." 
Extensive work was carried out in reserving for the reinsurance by Equitas, which involved a large number of the leading external actuaries and accountants. The results of this work were considered by, amongst others, the DTI advised by the Government Actuary's Department. The Council of Lloyd's was advised by Lazard Brothers & Co Ltd and by Tillinghast-Towers Perrin. The board of Equitas was separately advised by N.M. Rothschild. Approval of the New York Insurance Department was also required, given the assets held in trust in the US in relation to the market's US dollar denominated business. 

19. THE YEARS IN QUESTION 1978 TO 1988
In this chapter I refer to some of the key events before and during the Relevant Period.

Pre 1978
According to Lloyd's the period between 1952 and 1978 was profitable, apart from the years 1966-1968 which were affected by Hurricane Betsy.
In 1968, a Working Party under Lord Cromer was appointed "to recommend what should be done to encourage and maintain an efficient and profitable Lloyd's underwriters' market of independent competing syndicates, which would be of a size to command world attention". The Cromer Report was dated 23 December 1969.
In March 1977 the Chairman of Lloyd's Sir Havelock Hudson wrote to Mr. P. G. Bird (Chairman LUAA) as to concerns expressed at the large number of applications for underwriting membership. Some people had suggested that the Committee of Lloyd's should either limit the number of new Names which might be accepted by any one agency in a particular year, or restrict the premium limits of new Names. Sir Havelock Hudson said that "The Committee of Lloyd's do not consider it to be their proper function to interfere with the conduct of underwriting agency business. It is felt that...decisions as to whether to accept new Names, ...should be left to the discretion of underwriting agents in consultation with those Names".

The Calendar Year 1978
In 1978 Mr. I.H.F. Findlay was Chairman of the Committee of Lloyd's; Mr. A.B.Gray was senior Deputy Chairman and Mr. C.O. Gibb junior Deputy Chairman.
On 22 March 1978 the Committee of Lloyd's decided that a Committee of Inquiry should be set up to investigate the Lloyd's market aspects of the "Savonita" matter.
On 26 April 1978 the Committee of Lloyd's considered whether temporary assistance might be given to Names on the Sasse non-marine syndicate 762.
On 9 August 1978 the Committee of Lloyd's was advised that concern had been expressed regarding the possible magnitude of Computer Leasing claims and the fact that they might affect a number of years of account. It was agreed that auditors should be given an appropriate warning regarding Computer Leasing claims in the Audit Regulations to be issued at the end of January 1979.

The Calendar Year 1979
In 1979 Mr. I.H.F. Findlay was Chairman of the Committee of Lloyd's; Mr. C.O. Gibb was senior Deputy Chairman and Mr. Peter Green junior Deputy Chairman.
The Fisher Working Party (established by the Committee of Lloyd's) held its first meeting on 5 February 1979. The terms of reference were:-
"To enquire into self-regulation at Lloyd's and for the purpose of such enquiry to review:-
(i) the constitution of Lloyd's (as provided for in Lloyd's Acts and Bye-laws);
(ii) the powers of the Committee and the exercise thereof and;
(iii) such other matters which, in the opinion of the Working Party, are relevant to the enquiry.
Arising from the review, to make recommendations".
On 14 February 1979 the Committee of Lloyd's approved certain recommendations of the Audit Committee concerning the treatment of Computer Leasing business for the purpose of the Audit as at 31 December 1978.
On 28 February 1979 the Committee of Lloyd's agreed that no action should be taken to restrict the numbers or premium limit of new Names who would commence underwriting from 1 January 1980.
On 19 March 1979 the Committee of Lloyd's considered the form of the letter which was to be sent to the market on the subject of Computer Leasing. A letter was sent to all underwriting agents, active underwriters and panel auditors dated 23 March 1979 setting out the Committee's advice as to the treatment of possible losses on Computer Leasing insurances.
On 30 May 1979 the Committee of Lloyd's decided that Rota Committees should enquire whether prospective Names had been advised by their underwriting agents whether the syndicates in which they were to participate were on the Computer Leasing risks and, if so, the basis upon which any loss or losses would be treated.
On 15 October 1979 the Membership Committee decided that no recommendation should be made to the Committee of Lloyd's to place any restrictions upon capacity during 1980, for 1981.
At a Special Meeting of the Committee of Lloyd's on 14 December 1979 (in the course of consideration of audit percentage reserves) Mr. Murray Lawrence suggested that consideration should be given to breaking down the "All Other" account in order to extract the very long-tail business, and that premium income was not the appropriate yardstick upon which to base the reserves for the older accounts. The Committee agreed that the sub-division of the non-marine "All Other" business account should be considered during 1980. Mr. Lawrence's suggestion was a responsible one and it is regrettable that it was several years before this important issue was addressed.

The Calendar Year 1980
In 1980 Mr. Peter Green was Chairman of the Committee of Lloyd's; Mr. C.O. Gibb was senior Deputy Chairman and Mr. A.W. Higgins junior Deputy Chairman.
On 5 March 1980 Mr. M. Langton (Chairman of the LUAA) wrote to Mr. Pollard of the Membership Department stating that the LUAA Committee hoped that questions about Computer Leasing or any other specific claims would be avoided at Rota.
On 29 April 1980 at a meeting of the Audit Committee (in the course of discussion of Stop Loss reinsurance) Mr. Lawrence said there was a danger to the security of the market in that liability was being funnelled into a few syndicates. This was a responsible comment.
The Report of the Fisher Working Party was dated May 1980. In an accompanying letter of 23 May the Working Party referred to its conclusions that the constitution of Lloyd's was no longer appropriate and that the Committee's powers were inadequate for self-regulation in modern conditions. The Working Party recommended that the Committee of Lloyd's should promote a new private Act of Parliament "so that the constitution of Lloyd's can be brought up to date and the powers of self-regulation enlarged". 
The Fisher report said that it had always been strongly believed at Lloyd's that there should be a limit to the extent to which the Committee should seek to influence or control the business conducted in the market and that for the most part commercial decisions and, in particular, decisions about the risks to be underwritten, about the terms of the underwriting and about payment or refusal of claims, should be left to individuals in the market. On the other hand exceptions had from time to time been made to this principle though not on a very consistent basis. (Paragraph 1.18).
The Fisher report did not quarrel with the general principle, nor with the policy of making exceptions to it when they were considered to be clearly necessary. The report identified the grounds on which, and the purposes for which, the Council and Committee of Lloyd's would be justified in interfering in the free working of the market, The grounds and purposes were stated as follows:-
(a) In the interest of the security of the Lloyd's Policy;
(b) To prevent conduct or situations which are harmful to Lloyd's as a market;
(c) To prevent conduct or situations which may bring Lloyd's as an institution into discredit;
(d) To ensure the continuance of Lloyd's as a market where conditions of free competition obtain;
(e) To give sections within the Lloyd's Community protection which they can justifiably expect but are not in practice able to obtain for themselves. (paragraph 1.19).
In an internal document dated 30 September 1980 relating to syndicate 219, Mr. C. Skey wrote "If the 'exposure' theory is upheld in asbestosis cases we fear it will be impossible ever to close our books with any certainty".
A meeting of the Panel of Auditors was held on 28 October 1980 with Mr. A. Chester in the chair and Mr. Murray Lawrence representing the Audit Committee. As to MPRs, the main area which concerned the auditors was the non-marine "All Other" account where they considered that the scale should be divided between medium and very long-tail business. They were informed that the Audit Committee was already looking at the division of the non-marine "All Other" scale of reserves.
On 4 November 1980 an Extraordinary General Meeting of Members of Lloyd's was held for the purpose of promoting a new Act of Parliament.
At a Special Meeting of the Committee of Lloyd's held on 11 December 1980 non-marine "All Other" business was discussed. Mr. Lawrence considered that the statistics on older years were misleading as they were based on premiums written at the time, which bore little relation to the current settlement pattern. As to the separation of long-tail business from the "All Other" account, Mr. Lawrence said that LUNMA had not been able to provide such a split. Mr. Nelson informed the Committee that asbestosis was likely to give rise to very heavy claims which might go back 25 years. The Committee agreed that auditors' attention should be drawn to the effect on reserves of very long-tail business such as products liability and excess casualty reinsurance business, and that the Audit Committee should bear this in mind when considering the reserves to be created at the 31 December 1981 audit, together with the method by which the reserves on older year accounts were calculated.

The Calendar Year 1981
In 1981 Mr. Peter Green was Chairman of the Committee of Lloyd's; Mr. A.W. Higgins was senior Deputy Chairman and Mr. B.J. Brennan junior Deputy Chairman.
On 2 February 1981 Mr. Randall (Manager UAAD) wrote to all panel auditors. As to very long-tail business the letter stated:-
"Where a syndicate underwrites very long-tail business such as product liability and excess casualty reinsurance business, auditors are asked to pay particular attention to the effect that such business will have on the reserves to be created bearing in mind the greatly increased cost of claims on older years of account due to inflation etc."
In September 1981 the first Asbestos White Paper entitled 'Discussion Document on Loss Occurrence Definitions in respect of Reinsurance Contracts covering Casualty Business' was issued.
In about the autumn of 1981 Chatset's Lloyd's League Tables were published for the first time. In its first publication Chatset said:-
"It would appear likely that additional reserves will have to be made in the 1979 and 1980 accounts against further asbestosis and DES claims. Asbestosis has been described as the largest ever insurance loss and will not only affect the non-marine market."

The Meeting with Panel Auditors on 10 November 1981
A meeting of the Advisory Panel of Auditors was held on 10 November 1981. Mr. R. J. Kiln was in the chair. Mr. Murray Lawrence represented the Committee of Lloyd's. 
I have seen five notes of this meeting (minutes prepared by Lloyd's Corporation staff; minutes prepared by Mr. Nigel Holland of Ernst & Whinney; manuscript notes on the agenda by Mr. Blake of Neville Russell and the typed notes of Mr. Blake; and notes prepared by Mr. Stevens of Littlejohn and Co).
The minutes prepared by Lloyd's Corporation staff record under the heading, Any Other Business:-
"ASBESTOSIS
Mr. Kiln reported that claims were being made on notices as far back as 1947 where underwriters had been involved in direct insurances or reinsurances of companies covering liabilities of companies subject to asbestosis claims.
Mr. Lawrence reported that a databank was being produced which would contain details in respect of the 10 or 12 major assureds with all years of cover. The loss adjusters would then be able to make some estimate of underwriters' lines on such risks. Projections of claims for three or five years hence would be made, and also loss expenses for two or three years ahead; both such items would be in respect of direct business only. From the databank it would be possible to obtain a list of major companies and look at their reinsurers, to give a rough estimate as to the exposure in respect of reinsurance business.
Mr. Kiln pointed out that he did not wish to see mention of these specific claims in the Audit Instructions.
Mr. Holland requested that an indication should be given to auditors as to how the databank report was fragmented, so that they may know what to look for. Mr. Lawrence replied by stating that a Market Meeting would be held soon enabling all to be apprised of the situation. It was agreed that there would be a further meeting of the Panel early next year to consider asbestosis..."
As to Mr. Kiln's statement, for a number of years panel auditors had commented that it was inappropriate to draw their attention to specific market problems, thereby encouraging auditors to rely upon these advices rather than their own auditing enquiries with their clients. Thus in the "White Regulations" specific mention was made of the current problems with regard to "latent diseases" (but no specific mention was made of asbestosis) and "products liability". 
On 4 December 1981 the second Asbestos White Paper entitled 'Occurrence Coverage on Excess of Loss Contracts covering Casualty Business' was issued.
On 7 December 1981 a Special Meeting of the Committee of Lloyd's was held. It was agreed that the "White Regulations" should in future be specifically addressed to all underwriting agents and active underwriters, as well as to panel auditors.

The Calendar Year 1982
In 1982 Mr. Peter Green (from June Sir Peter Green) was Chairman of the Committee of Lloyd's; Mr. B.J. Brennan was senior Deputy Chairman and Mr. Murray Lawrence junior Deputy Chairman.

The Meeting with Panel Auditors on 15 January 1982
A meeting of the Advisory Panel of Auditors was held on 15 January 1982. Mr. R.J. Kiln was in the chair and Mr. E.E. Nelson also attended. The main purpose of the meeting was to inform auditors of the latest position with regard to the large number of outstanding claims due to various latent diseases. Mr. Nelson mentioned Agent Orange, Love Canal, DES and asbestosis, adding that the first three were not significant compared with the problems of asbestosis. A department had been set up within the LUNCO premises. The details of the slips and losses etc had been fed into a computer and auditors were advised that they should seek their clients' permission to access the information on this computer. The computer programme would give a claims payout breakdown.
In addition to the notes of the meeting prepared by Corporation staff I have seen a note of Mr. P.B. Milne of Littlejohn and Co and a note of Mr. Blake of Neville Russell. According to Mr. Milne's note:-
"Ted Nelson advised on asbestosis. ...It is difficult to guess what the final number of claims will amount to, but it was suggested that by the mid to end 1980s we should expect some 25,000 in total. (An aside by someone stated that the Prudential were guessing at a figure of 2,000,000 claims. Nelson said he considered this figure to be well wide of the mark)... On an exposure basis 40% is with London companies and Lloyd's, whereas on a manifestation basis it is 10%.
Loss reserves do not take into account syndicates own protection arrangements...
As far as the IBNR factor is concerned, it is suggested that a view should be taken as to what can come forward within the next five/six years..."
According to Mr. Blake's note:-
"Ted Nelson said that claims were increasing by 400 per month at present with the peak likely during the late 1980s. He also stated that 25,000 extra claims were expected by the end of the decade. ..." 
I accept Lloyd's submission that there is nothing in the minutes which supports the suggestion that Mr. Kiln and Mr. Nelson were seeking to side-track the auditors or to encourage under-reserving. The notes of the meeting indicate that some of the principal issues in relation to asbestos-related claims were advised to the auditors.
A number of firms of Panel Auditors (Ernst & Whinney, Arthur Young, Littlejohn and Co and Neville Russell) agreed to send a standard questionnaire to each of their syndicate clients in order to try and ascertain the extent to which they were involved with asbestosis claims (see a Neville Russell memorandum of 3 February 1982).
A memorandum from Mr. Randall (manager UAAD) to Mr. Murray Lawrence dated 22 February 1982 stated that Mr. Randall had arranged for the question of reserves for asbestosis and other latent diseases to be put on the agenda of both the Membership Committee and the Audit Committee "when further consideration will be given to the basis of reserving and whether new Names should be warned that specific syndicates are carrying a liability for such risks".

The Neville Russell Letter of 24 February 1982
On 24 February Neville Russell wrote a letter to the Manager, Audit Department on behalf of themselves and five other firms of panel auditors in the following terms:-
"A substantial proportion of our Syndicate clients have losses, or potential losses, arising from asbestosis and related diseases.
It appears that although, in respect of direct insurance of the main carriers and reinsurance of American insurers, Syndicates have received some notification of outstanding claims, they are unable to quantify their final liability with a reasonable degree of accuracy for the following reasons:
(i) You have informed us that there have been approximately 15,000 individual claimants. Total exposure to the problem appears to be considerably in excess of this figure.
(ii) The Courts have not yet finally decided on whether the exposure or manifestation basis is applicable.
(iii) The losses are being apportioned over carriers on an "industry" basis. If one of the carriers has losses in excess of its insurance cover (as seems likely) then it could go bankrupt. It appears that its share of the industry loss could be apportioned over the remaining companies.
(iv) Most Syndicates are not very certain of their reinsurance recoveries.
(v) Most Syndicates will incur losses on their own writings of reinsurance business. Very little of this has been advised so far.
The Audit Instructions (Clause 3) require that if there are any factors which may affect the adequacy of the reserves, then the auditor must report to the Committee and obtain their instructions before issuing his Syndicate Solvency Report.
We consider that the impossibility of determining the liability in respect of asbestosis falls into this category and we accordingly ask for your instructions in this respect."
The Neville Russell letter thus sought instructions under clause 3 of the Instructions for the Guidance of Lloyd's Auditors.
The Neville Russell letter was considered at a meeting of the Audit Committee on 2 March 1982. Mr. Chester (in the chair) said that he had spoken to Mr. Nelson about the letter. Mr. Nelson had put forward a number of suggestions. With regard to the question of whether claims should be reserved on an exposure or manifestation basis it was considered that whichever basis produced the worst result should be adopted. Having discussed Mr. Nelson's views, the Audit Committee considered that it would not be possible or desirable for them to give a definite answer as to the amount or basis of reserves a syndicate should carry. It was for the underwriter of each syndicate to determine his potential liability and agree this with his auditor. It was, however, necessary for a full discussion to take place with panel auditors so that where possible general guidance could be given and it was agreed that a meeting should be arranged at the earliest opportunity. Mr. Chester raised the question of the reinsurance of underwriters' asbestosis liability in the Lloyd's market (i.e. effectively amounting to reinsurance of the asbestosis "tail") and expressed concern that such liabilities could fall on comparatively few syndicates.

The Panel Auditors Meeting on 9 March 1982
A meeting was held on 9 March to discuss with panel auditors the content of the Neville Russell letter. Mr. Chester was in the chair and Mr. Nelson and Mr. Randall were present. The main worry raised by the auditors was the widely differing views taken by syndicates. The real purpose of their letter was an attempt to seek some uniformity in the Lloyd's market for dealing with this matter. They considered that it would be grossly unfair for syndicates on the same risk to treat their reserves on an entirely different basis. The auditors were concerned not only about under-reserving, but also about over-reserving. Part of the auditors' job was to ensure that there was equity between the account accepting the reinsurance and the closing account. Mr. Chester asked the auditors for their opinion on leaving the 1979 account open. Auditors thought that although this would solve the problem of equity between years of account it would still leave the problem of quantification, in that Names could still be asked to put up substantial sums of money. Mr. Nelson said that in his view a figure of 50,000 new claims over the next 10 years would seem to be realistic and that the reports of up to 2 million new claims could well be an exaggeration. Mr. Randall said that perhaps Lloyd's could consider issuing guidelines on the basis of the 50,000 figure and that where asbestosis formed a material part of a syndicate's accounts (say 10%) then consideration should be given to leaving the account open. The auditors said that they would be reassured with guidance of this sort. Mr. Chester agreed to take up the question of guidelines with the Deputy Chairman and to report back to the auditors in due course. As to the writing by certain Lloyd's syndicates of the reinsurance of other syndicates' asbestosis liability, Mr. Chester said that this could lead to the funnelling of a large amount of liability into a small number of Names. He added that consideration was being given to asking the market to stop writing such reinsurances in the open years.
Mr. Nelson's Memorandum of 12 March 1982
Mr. Nelson set out his personal appraisal and opinion regarding the asbestosis problem in a memorandum dated 12 March which was reviewed by Mr. Randall and Mr. Lawrence, who added manuscript comments. As to points which the auditors had raised with Mr. Randall on 11 March, Mr. Nelson agreed (i) that between 30% and 40% of Lloyd's syndicates were substantially affected; (ii) that there should be a requirement that all Names be given a detailed résumé of a syndicate's involvement as part of the underwriters' report; and (iii) that where a syndicate had assumed a run-off of another Lloyd's syndicate, this should be reported separately and the basis of reserving agreed with the auditor. In addition Mr. Nelson set out his own views on a number of matters and his opinion as to the action the Committee should take. In particular Mr. Nelson considered that managing and members' agents should advise their Names at year end "of their asbestosis position overall and the manner in which the claim has been handled by them". Mr. Randall added a number of manuscript comments to Mr. Nelson's memorandum including - "?Position of new Names".
A memorandum for consideration by 'O' Group dated 15 March 1982 from Mr. Murray Lawrence enclosed Mr. Nelson's memorandum. (To help 'O' Group, Mr. Randall and Mr. Lawrence had made some brief comments on Mr. Nelson's paper). 
On 15 March Mr. C.K. Murray wrote to Mr. Murray Lawrence a letter which has become known as 'the Bannockburn letter'. Mr. Murray had heard that the panel auditors had approached the Audit Committee for guidance with regard to the figures which should be allocated to asbestosis claims. The letter stated:-
"Underwriters, managing agents and panel auditors must obviously work with integrity and diligence so that the final figure agreed appears likely to have adequate margins... Ultimately the underwriter is surely the best judge through his knowledge and experience, but regardless of this all of us should surely acknowledge that even our best endeavours may be found to be far too much or far too little at some later date... I hope also that panel auditors will enjoy a restoration of courage. Let them if need be look for this to their forebears and think of Bannockburn, Crecy or the parting of the Red Sea (dependent upon ancestry)".

The Meeting of the Membership Committee on 16 March 1982
At a meeting of the Membership Committee on 16 March chaired by Mr. Bird a decision was taken not to refer specifically to asbestosis risks in the Rota Brief. 
I find that this was an honest decision. Special considerations had applied to Computer Leasing. As Mr. Colin Murray pointed out in his witness statement it was the duty of the members' agent to mention specific risks relevant to the syndicates which a Name was joining, and to ensure he could give informed advice based on information as to the degree of exposure, reinsurance protections, its general history of adequacy of reserving, profitability and so forth. It was not feasible to discuss in Rota every issue which might be relevant to a Name's portfolio. As Mr. Murray pointed out "If we had mentioned some issues and not others this might have been misleading and the subject of criticism". It is important to emphasise that this issue must be judged wearing the spectacles of March 1982, not the spectacles of the year 2000. 

The Meeting of the Committee of Lloyd's on 17 March 1982
At a meeting of the Committee of Lloyd's on 17 March (with Mr. Peter Green in the chair) the Neville Russell letter was considered. The main area of concern centred around the need for syndicates to make searching enquiries regarding their potential exposure, both direct and by way of reinsurance written, to enable them to make adequate provision in their accounts at 31 December 1981. There appeared to be substantial differences in approach both as to the amount of research carried out and the intended IBNR loadings as at 31 December. Without guidelines from the Committee, the auditors believed that there was a real danger that managing agents and auditors would not be able to agree the closing reserves and that some syndicate results might be qualified by auditors. In addition there could be wide discrepancies as to the approach adopted by individual syndicates.
A draft letter (in response to the Neville Russell letter) had been prepared for the Committee's agreement. The draft had already been discussed with three of the auditors concerned. Two firms considered that it was vitally important that the Committee should stipulate a minimum percentage for IBNR loading. The Committee felt (understandably) that it was in no position to stipulate a minimum percentage for IBNR loading. This would depend on the cover written and the particular syndicate's own reinsurance programme. Mr. Nelson said that in respect of at least one large manufacturer, syndicates had already reserved up to the policy limits and that no further IBNR would be necessary.
Some members of the Committee were unhappy that the Committee was instructing agents that they must tell their Names of their syndicate's involvement in asbestosis. It was decided that the wording in the draft letter should be amended, so that agents would be "strongly advised" to inform their Names of their involvement in asbestosis.
The Committee was informed that certain syndicates had indicated an intention to discount the reserve for asbestosis to reflect possible future investment earnings and that the auditors had requested a statement in any letter from the Committee specifically banning this practice. The Committee, whilst agreeing that such practice should not be allowed in the case of asbestosis, decided that to refer to one particular part of the reserve might lead underwriters to take the view that such a practice of discounting was being encouraged or condoned by the Committee.
The Committee decided that the draft letter (amended to reflect the points mentioned above) should be forwarded as soon as possible to the market, but that a separate letter from Mr. Randall (Manager of UAAD) should be sent to auditors in reply to the Neville Russell letter.
It is interesting to note that the memorandum for consideration by the Committee on 17 March stated that it was believed that the draft response would assist auditors in agreeing the reserves to be created at 31 December 1981 "although it is still possible that a few individual syndicates may feel it necessary to approach the Committee for further instructions. It is also likely that a number of syndicate accounts will be left open at the discretion of the managing agent concerned".

The Murray Lawrence and Randall Letters of 18 March 1982
On 18 March Mr. Murray Lawrence (as Deputy Chairman) wrote a letter in the following terms to be sent to all underwriting agents and active underwriters, with copies for information to all panel auditors:-
" Asbestosis - Lloyd's Audit at 31st December 1981
Potential claims arising in connection with Asbestosis represent a major problem for insurers and reinsurers. It is therefore all the more important that the reserves created in the Lloyd's Audit at the 31st December 1981, fairly reflect the current and foreseeable liabilities of all syndicates.
I should stress that the responsibility for the creation of adequate reserves rests with Managing Agents who will need to liaise closely with their Auditors. Clearly, individual circumstances will vary, but it is felt that the following broad guidelines may be helpful to Underwriters, Managing Agents and Auditors in agreeing equitable reserves as at 31st December 1981, and ensuring, so far as possible, a reasonably consistent approach to this problem.
1. Reserves for Asbestosis liabilities should be separately identified and disclosed to Auditors. This applies for both the closing and open years.
2. Substantial information has been built up in the LUNCO Office regarding direct business and all Underwriters should check the information available to ensure that their own records are as complete as possible. This information should also be made available to the syndicate auditors.
3. It is in the area of reinsurance writings that the information available may be least complete. Nevertheless, the Committee believes that some information is now available within the Market and Underwriters and Managing Agents should discuss with their Auditors the steps they have taken to quantify and reserve for losses which may arise on an Excess of Loss or Pro Rata basis as a reinsurance of American or other insurers. In this connection, Underwriters should attempt to identify reinsureds on whom Asbestosis claims are likely to fall and to seek their opinion as to the basis on which they intend to submit claims on their reinsurance contracts together with the reserves which they are carrying at the present time and an estimate of possible future liabilities.
4. The Committee is aware of the legal argument whether liability arises on the basis of "exposure" or "manifestation". It is not, however, for the Committee to express an opinion as to which is correct. For the purpose of reserves at 31st December 1981 Managing Agents are strongly advised to carry a reserve which is the higher of the alternatives.
5. An IBNR "loading" should be carried for those claims not specifically advised but which could come to light in the years ahead. The decision regarding the appropriate IBNR percentage is a matter for the Agent and his Auditor to resolve dependent upon the circumstances of each case. It would be inappropriate for the Committee to lay down a minimum loading but, it appears that this loading should be substantial to reflect unreported cases on the direct account and incomplete information on the reinsurance account. Credit may, of course, be taken in respect of reinsurance recoveries, but Agents should verify, so far as possible, that reinsurers have been identified and have agreed to accept claims on the basis submitted. In the event that there are any disagreements with reinsurers these should be discussed with Auditors. (The normal guidelines regarding the admissibility of reinsurance recoveries obviously will apply).
6. A syndicate which has written a run-off or stop loss in respect of an Asbestosis account which has been signed into an open year, should advise the details to its Auditors and where appropriate, the open year reserves should be increased.
7. A syndicate underwriting London Market Excess of Loss business should make particular and comprehensive efforts to ascertain the extent of its possible liability going beyond those claims which have been advised at 31st December 1981, and these should be fully disclosed to and discussed with Syndicate Auditors. The same requirement should apply to specialist Personal Stop Loss syndicates.
8. Where the reserve for Asbestosis represents a material proportion of the total reserves of the syndicate, Agents should consider whether or not to leave the account open. It is the Agent's responsibility to ensure that the reserves provided for Asbestosis are sufficient to meet the Syndicate's liabilities regardless of whether the account is closed or left open.
9. Managing and Members Agents are strongly advised to inform their Names of their involvement with Asbestosis claims and the manner in which their syndicates' current and potential liabilities have been covered.
I would urge you to discuss the contents of this letter with your Auditor before deciding what further action, if any, is necessary for you to take.
This letter has been sent to all Underwriting Agents and Active Underwriters, with copies for information to all Panel Auditors."
In addition on 18 March Mr. Randall (as Manager of UAAD) wrote to all panel auditors as follows:-
"Asbestosis - Lloyd's Audit at 31st December 1981.
Several Panel Auditors have approached the Committee for instructions under Clause 3 of the Instructions for the Guidance of Lloyd's Auditors regarding the basis on which syndicates should provide for Asbestosis liabilities in their accounts at 31st December, 1981.
I attach a copy of a letter which is being circulated to all Active Underwriters and Underwriting Agents setting out broad guidelines which should be followed in this regard.
The Committee has decided that it is inappropriate to specify a minimum IBNR loading to apply across the Market; the IBNR loading is regarded as a matter for Managing Agents to resolve depending upon the particular circumstances of each syndicate. Nevertheless the Committee wishes me to stress that, unless there are sound reasons to the contrary regarding any specific case, the loading should be very substantial to reflect unreported cases on the direct account and, possibly, incomplete information on the reinsurance account. The Committee also believes that the reserve (including the IBNR loading) should be maintained in full and not discounted to reflect possible future investment earnings.
One of the main reasons why the Committee does not feel it is appropriate to lay down a specific IBNR loading factor is that in a number of cases syndicates will have reserved up to the maximum of policy limits and a substantial IBNR loading, in addition to this figure, might be regarded as excessive.
Auditors will no doubt give special attention to the question of whether or not the Agent has decided to leave an account open in cases where the reserve for Asbestosis represents a material proportion of the total reserves of the syndicate or where there is a wide margin for error in the basis of calculation of the closing reserves due to a lack of current information..
Where it is decided that an account should be left open, your attention is particularly drawn to Clause 6 Note 1 of the Instructions for the Guidance of Lloyd's Auditors regarding the reserves which are being created for the purposes of assessing Members' solvency.
This letter is being sent to all Panel Auditors." 
The Names' pleaded case is that the Murray Lawrence letter and the Randall letter "were recklessly and/or deliberately concealed by Lloyd's from the members' agents and thereby the Names, in that they were not sent to or received by the vast majority of members' agents who were the only means by which the contents could have been transmitted to the Names. The [Names] will rely, inter alia, in support of this allegation on an admission made in or about 1992 by Mr. Lawrence to John Osbrey that the letter "had only been sent to a few people" ". Both sides spent a great deal of time and effort investigating this issue. I find that the Murray Lawrence letter was sent to all underwriting agents (including members' agents) and all active underwriters, as stated in the final paragraph of the letter. I make the following points in relation to this conclusion:-
(1) I have carefully reviewed all the evidence in this connection including those instances where it has been clearly established (albeit at this remove in time) that the letter was received by a members' agent.
(2) Some of the evidence on this subject was plainly partisan.
(3) Mr. McKinnon said when giving evidence "I have no recollection of having seen it, but we did get hundreds, I probably got a thousand letters from the Committee of Lloyd's during my lifetime as an underwriter". The Murray Lawrence letter has achieved a significance in recent years which it did not have in March 1982.
(4) According to Lloyd's the total number of underwriting agencies in the Lloyd's market in 1981 was 301, of which 165 were combined agencies, 30 were pure managing agencies and 106 were pure members' agencies. Despite the passage of more than 18 years there is some direct evidence of receipt of the Murray Lawrence letter by pure members' agents and there is other material from which it can reasonably be inferred that the letter was received by pure members' agents.
(5) I refer to Bundle P 1 which contains the respective contentions of the parties as to distribution of the Murray Lawrence letter and reflects the extent to which it is common ground that the letter was received.

The LUNMA Committee Meeting on 18 March 1982
Mr. Ballantyne (Chairman) informed the LUNMA Committee at its meeting on 18 March that the Chairmen of the Market Associations had been called to a meeting by Mr. Murray Lawrence to discuss a letter on the subject of asbestosis claims which was being circulated to all underwriters. Concern had been expressed by auditors that certain syndicates were not making proper provision with regard to reserves for asbestosis claims and the letter was designed to ensure that the importance of the matter was appreciated throughout the market.

The Names' Case As To The Content Of The Murray Lawrence Letter
Mr. Goldblatt submitted that there was an element of dishonesty in both paragraphs 6 and 8 of the Murray Lawrence letter. As to paragraph 8, Mr. Goldblatt submitted that it was consistent with the policy, which the Names say was adopted, of taking the matter gently. Further Mr. Goldblatt submitted that paragraph 9 (which included the words "strongly advised") contained the effect of the Committee decision not to direct that Names should be told, and was therefore dishonest.
I reject these submissions. It is important to emphasise that the Murray Lawrence letter must be judged wearing the spectacles of March 1982. I find that the Murray Lawrence letter and the Randall letter were an honest response to the issues raised by the Neville Russell letter.

Events Post The Murray Lawrence Letter
At a meeting of the Audit Committee on 6 April 1982 Mr. Randall reported that there had been little or no reaction from the market following the circulation of the Murray Lawrence letter. 
A document prepared by Mr. D.W. Ellis (a member of the Corporation staff) dated 14 June 1982 listed 'Some Major Exposures or Losses'. The figure of $38 billion in respect of asbestosis was drawn from the McAvoy Report of January 1982 'The Economic Consequences of Asbestos-Related Disease'.
On 21 July 1982 the Committee of Lloyd's considered a memorandum on how best to ensure that the eight elected external members of the Council of Lloyd's not only had an opportunity to learn about Lloyd's, how the market worked and who was responsible for what, but also identified themselves as integrated members of the Council of 27 working towards the same long term objectives.
The Lloyd's Act 1982 received Royal Assent on 23 July 1982.
Lloyd's Log of October 1982 contained a report from Sir Peter Green (Chairman of Lloyd's) entitled 'Lloyd's Announce Profit of £172.9m on 1979 account'. 
An accompanying report from Mr. Richard Ballantyne (Chairman LUNMA) included the following:-
"Asbestosis
Probably no report of this nature would be complete without some reference to the serious problems which have arisen and which are likely to persist arising from asbestosis. 
Many commentators have tried to put a figure on how much this will actually cost but in my opinion it is totally impossible to quantify. Policy wordings have been construed in many different ways, most 
of them to the detriment of insurers. Many of the syndicates in 
Lloyd's started underwriting after the asbestosis losses had become apparent and so should be unaffected, whilst others may well have seen the danger coming and have taken steps to minimise the total impact.
One thing is certain and that is the fee bills will be enormous; for instance, in respect of one of the assureds, for every $1.5m being paid in indemnity, $2.4m is being paid in fees. There is some indication, however, of a slowdown in advice of new claims, so we are hoping that the peak has passed."
At a meeting of the Committee of Lloyd's on 9 December 1982 Mr. Nelson gave a brief summary of the latest position with regard to asbestosis. Mr. Nelson advised the Committee that there was now a sophisticated and meaningful computer system for all asbestosis business written on a direct basis. This information was available to both underwriters and auditors. As to the number of cases being advised, this had risen from the original estimate of 15,000 to approximately 25,000 but the average cost, whilst being eroded due to inflation was still within the original estimate of $125,000 plus $10,000 expenses. The controversy as to whether claims would be settled on an exposure or manifestation basis had still not been resolved. As to reinsurance business, due to time constraints, there was little information available from the computer but it was hoped that more meaningful figures would be produced the following year.

The Calendar Year 1983
In 1983 Sir Peter Green was Chairman of the Council of Lloyd's; Mr. B.J. Brennan was senior Deputy Chairman and Mr. F. Barber junior Deputy Chairman; Mr. Ian Hay Davison was Deputy Chairman and Chief Executive from February 1983. 
The Council of Lloyd's met for the first time on 5 January 1983. The new Council comprised three constituent groups, 16 working Names, 8 external Names (including Mr. Fredjohn and Mr. Kulukundis) and 3 individuals nominated by the Council and confirmed by the Governor of the Bank of England. The nominated members of the new Council were Mr, Brandon Gough of Coopers and Lybrand, Mr. Edward Walker-Arnott of Herbert Smith, and Sir Kenneth Berrill, former Chief Economic Adviser to the Treasury and Head of the Central Policy Review Staff of the Cabinet Office, who became Chairman of the Securities and Investment Board in 1985.
At a meeting of panel auditors on 30 November 1982, the auditors had been asked if they would like a follow-up meeting on asbestosis. A follow-up meeting was (it appears) held early in the new year.
On 8 April 1983 Sir Peter Green (as Chairman) wrote to all managing agents, members' agents (for information) and approved accountants on the subject of Disclosure of Reinsurance Arrangements. The letter stated that the Committee of Lloyd's was seeking information as to certain reinsurance arrangements in order to obtain a better understanding of reinsurance practices within the market. By paragraph 3.1 managing agents were required to disclose details of all reinsurance contracts or arrangements in force at 31 December 1982 which by their terms or by separate agreement enabled a syndicate to build up reserves against general underwriting losses or for any other reasons. This requirement was intended to identify arrangements under which characteristically, funds were accumulated and could be returned to the syndicate, effectively at the discretion of the agent or underwriter. By paragraph 3.2 managing agents were required to disclose details of all related party reinsurance arrangements which had been in force at any time since 31 December 1979.
In his statement as Chairman of Lloyd's in Lloyd's Global Accounts 1982 Sir Peter Green said:-
"I am pleased to say that this year we are presenting Lloyd's Global figures in a much improved and more comprehensive form...
Another important innovation is the inclusion in the underwriting accounts of separate figures for the reinsurance provision made to close the 1980 and previous accounts. At £2113 million, this is the underwriting agents' best assessment of the outstanding liabilities of the syndicates under their management. ...
The figures show that for the 1980 year of account Lloyd's made a profit of £264 million...
It will be noted...that the known assets of Lloyd's at present exceed the statutory requirement by more than five times. ...
One aspect of the Lloyd's figures which is indicative of confidence in Lloyd's is the ratio of membership to premium income. In 1970, 6,000 members earned premiums worth just over £786 million. Ten years later, although the membership has tripled, Lloyd's premium income had gone up by nearly five times. ..."
An accompanying report by Mr. Michael Cockell (Chairman LUNMA) included the following:-
"...I look at 1980 as the worst non-marine underwriting result since the mid-1960s, brought about by the gradual decline since those days in commercial sanity bolstered by the insidious buffer of historically high interest rates. ...
It may prove in time that 1980 was the year when many syndicates were able to reserve for their asbestos and trauma-related potential. It would be appropriate if I explained how difficult it is to comment on the asbestos situation in a way that would be useful. It must be understood that extremely onerous and sensitive discussions and negotiations are continually taking place. There is always the potential danger of punitive damages, so I cannot helpfully comment in detail on these subjects.
It takes a brave man, or a foolish one, to forecast the outcome of the open years. For what it is worth I would personally expect the bottom line on each to show a deterioration on the preceding one. ..."
The Audit Committee had requested that for those syndicates which had reported inadequate audit reserves of 15% or over, the inadequacy should be looked at in relation to the capacity and premium income of the syndicate concerned. On consideration of the figures, the Audit Committee felt that although in some cases the figures appeared to be extremely high, the circumstances and reasons for the figures had to be taken into account. One of the main reasons for the high apparent inadequacies was the asbestosis problem; another was roll-over funds causing an increase on closing reinsurance.
On 21 October 1983 Mr. B. J. Brennan (Deputy Chairman) wrote to advise underwriting agents of the procedure being followed at Rota interviews where prospective members were intending to underwrite through an agency which was the subject of an investigation or which managed a syndicate which was the subject of an investigation. The inquiries concerned were (i) PCW/Alexander Howden Underwriting Ltd/Posgate & Denby (Agencies) Ltd and (ii) syndicates underwritten by T.R. Brooks & Others/Fidentia Marine Insurance Co Ltd.
On 26 October 1983 the Secretary of LUNMA wrote to Mr. A.H. Chester (Chairman Audit Committee) on the subject of audit regulations - "All Other" category. The LUNMA Committee had considered the situation with the benefit of the views of Mr. E.E. Nelson (who was also a member of the Audit Committee). The LUNMA Committee had agreed that any conclusions which would result in percentages in excess of 100% were fraught with danger and unacceptable. The LUNMA Committee was therefore unable to recommend to the Audit Committee any positive split in the "All Other" category. The Committee were also of the view that there should be no new Audit Codes splitting the "All Other" category into statistical sub-divisions. 
By December 1983 the loss forecast in respect of Computer Leasing had been reduced to US$370 million and virtually all claims had been settled (see a memorandum from the publicity and information department dated 16 December 1983).
On 22 December 1983 the DTI wrote to the MSSD in relation to Instructions for the Guidance of Lloyd's Auditors. As to non-marine "All Other" US dollar the letter stated that the reserves for this exceptionally long-tailed account looked very weak, particularly at the end of years 1 to 4 but also throughout the tail. There was prima facie evidence that the minimum reserves had not been shown to be adequate, and the full picture was yet to emerge, as the estimated ultimate cost as at years 7, 8,9 etc based on the minimum audit reserves would probably be shown to be optimistic. The Government Actuary's Department believed that strengthening was needed in the tail, and also in the first four years. Objections to minimum reserves of more than 100% of premiums received would need to be resisted. To the extent that there was implied discounting for future income, the DTI thought it better to face this openly and declare the underlying assumptions.

The Calendar Year 1984
In 1984 Mr. Peter Miller was Chairman of the Council of Lloyd's; Mr. F. Barber was senior Deputy Chairman and Mr. Murray Lawrence junior Deputy Chairman; Mr. Ian Hay Davison was Deputy Chairman and Chief Executive.
In a memorandum dated 19 January 1984 on the subject of the Inland Revenue and rollovers and time and distance policies, Mr. Frank Barber (senior Deputy Chairman) mentioned asbestosis liabilities - "These losses are coming in at a frightening rate and for many syndicates a full reserve would bring massive losses to Names in 1981/1982 Accounts. This type of loss may settle very slowly if every case is contested through the courts or it may settle very quickly as underwriters attempt to reach a compromise with their assureds or re-assureds. In the former case, the reinsurer will make profits, in the latter, there exists the probability of severe losses."
On 20 January 1984 Mr. Simon Tuckey Q.C. and Mr. N.F. Holland FCA wrote to the Head of External Relations at Lloyd's in relation to a number of issues which had come to their attention as a consequence of their enquiry into the affairs of PCW Underwriting Agencies Ltd and WMD Underwriting Agencies Ltd, which they wished to refer to the Council of Lloyd's. The letter stated:-
"Whilst we do not attribute the misdeeds described in our report to the inadequacy of the regulations prescribed by the Committee of Lloyd's, we consider that there have been a number of instances where the self-regulatory framework of the market has been inadequate and that there is a need to introduce further controls to inhibit the opportunity for such transgressions in the future. We appreciate that action has been, or is being taken in respect of certain of these issues. 
The areas of concern can be summarised into three categories.
(A) An apparent lack of knowledge in the Lloyd's market of the basic legal framework in which it operates; 
(B) A lack of definition and understanding by those trading within the market of their respective responsibilities and;
(C) Deficiencies in the supervisory and administrative procedures."
These categories were amplified and explained in an attached Appendix.
As to the law of agency it was pointed out that managing agents and their staff including the underwriters are governed by the general principles of the law of agency and that the law of agency, among other things requires that an agent:
(a) acts at all times in the best interests of his principal;
(b) does not make secret profits at the expense of his principal; and
(c) makes a full disclosure of all matters affecting his relationship with his principal including his remuneration and any interest which he may have in the business which he transacts for his principal.
Appendix A continued -
"In the course of our enquiries it was apparent to us that many members of the Lloyd's community in senior positions were not even vaguely aware of the existence of such obligations. Indeed Mr. Wallrock told us that he only became aware, after the commencement of our enquiries, of "the actual law of agency". We consider that these basic principles should be widely promulgated and that they should be understood by any person holding a senior position in the Lloyd's market." 
On 8 February 1984 Mr. Robin Jackson (Chairman of the AWP) made a formal presentation to the panel auditors on the latest situation with regard to asbestosis. A preliminary meeting was arranged between Mr. Murray Lawrence and Mr. Jackson to run through what Mr. Jackson intended to say at the meeting.
In a memorandum dated 9 February 1984 Mr. Ian Hay Davison wrote to Mr. P.A.R. Brown:-
"As to syndicate accounting, I believe in all honesty it can be said that we have made great progress in arranging for the publication of syndicate accounts and by incorporating by byelaw certain basic essentials which will go to Council on 13 February...disclosure is the name of the game and disclosure is what we are achieving. There is an inevitability about the work of accountants in this field which even the high Tories on the Committee know they cannot reverse."
The meeting of the Membership Committee on 10 April 1984 provides an example of an external Name (Mr. E. Kulukundis) being present when questions to be asked at Rota Committees were considered, and changes discussed.
An Asbestos Working Party Market Meeting was held on 11 April 1984.
The Underwriting Agents Byelaw (No.4 of 1984) provided that the members of each syndicate for the time being managed by a managing agent should include: (a) at least two directors for the time being of that managing agent; and (b) the active underwriter of each such syndicate, unless the Committee otherwise agreed (Part C, paragraph 23).
On 25 May 1984 the Chairman (Mr. Peter Miller) wrote to Names to make clear Lloyd's position in relation to losses on the PCW syndicates, and also on other syndicates, under different managing agents, whose members felt disquiet. The letter said that the Council had a general duty to the membership at large to manage the Society and a specific duty to maintain an orderly market.
On 11 June 1984 the Council of Lloyd'resolved that a review procedure for syndicate annual accounts be established covering: (a) the completeness of annual reports; (b) the nature of the audit opinion; (c) the effect of qualified audit reports; and (d) overall compliance with the applicable accounting requirements. When introducing this subject to the Council Mr. Davison explained that the proposed review of the annual reports of syndicates was considered to be the minimum which should be done and was intended to ensure that:
(a) an annual report was received in respect of any syndicate in the market;
(b) each annual report received had been audited and that the nature of any qualification contained in an audit report was clearly understood and noted for follow up if appropriate;
(c) overall each annual report was complete and complied with the accounting requirements currently in force.
It was not, however, the intention to duplicate the work of the auditors nor to carry out financial analysis work nor to prepare league tables. The overall results of the reviews would enable Lloyd's to draw conclusions as to the effectiveness of the accounting rules and would be taken into account when considering further development of those rules.
The Johns Manville settlement was reached in July 1984. It involved the payment to Manville of a total of US$315 million, of which the London market paid US$94 million. Mr. Rayment said in his witness statement - "The settlement has proved to be a good deal, such was the explosion in claims in the latter part of the 1980s."
In his statement as Chairman of Lloyd's in Lloyd's Global Accounts 1983 Mr. Peter Miller said:
"I am pleased to report Lloyd's Global results for 1981...
it is pleasing to be able to record a substantial profitable result for 1981 of almost £152 million. ...
the reinsurance to close increased from £2.1 billion to £2.7 billion. ...
It is easy to be pessimistic in today's insurance world. I remain an unrepentant optimist...
I believe that while we still have to go through the troughs of 1982 and 1983, Lloyd's will emerge having avoided the worst of the losses now being reported by so many of its competitors, particularly in the US market. I predict a future in which Lloyd's will maintain and improve its position in the insurance industry."
An accompanying report from Mr. Ralph Rokeby-Johnson (Chairman LUNMA) included the following:-
"We who underwrite at Lloyd's have certain advantages over our competitors - for instance our business is truly international and we have the ability to change the content of our account swiftly. Nevertheless, it is impossible for most of us to perform entirely differently from others in our market place with the exception of small specialists. It is well known that non-marine underwriting has been very difficult and over-competitive in the early 1980s and our results demonstrate this. I will be surprised if my successors have better results to show for the underwriting years 1982 and 1983 when they are closed. ...
It is rapidly becoming apparent that the potential claims arising from asbestos will dwarf any claim in the history of our industry. It is very sad that in the United States to date under half of the money paid by our industry has ended in the hands the injured party, the balance is in the capacious coffers of the more rapacious lawyers: for this reason we support, and I very much hope all our industry will support, the concept of a claims handling facility set up by the insurers and manufacturers to look after the interests of the injured. ...
All these subjects require a re-appraisal of the reserves set up in the past to deal with future claims and it will not have escaped your notice that these reserves are constantly being strengthened by Lloyd's underwriters and the more prudent members of our industry.
I believe we are on the threshold of a time of opportunity for sensible underwriting: the ignorant or innocent capacity has been taught its lesson again. I only hope that this time we will not see the usual peaks and troughs and that common sense will have greater longevity. I fear that my hopes will not be well founded."
The Long Term Review Working Party on Membership Requirements (Chairman Mr. P.G. Bird) reported in October 1984. Mr. E. Kulukundis (an external member of the Council of Lloyd's) was a member of the Working Party.
A meeting took place in November 1984 between representatives of Lloyd's and the Inland Revenue, in relation to the Inland Revenue investigation into rollover policies and related matters. There was a strong element of advocacy in Lloyd's presentation to the Inland Revenue and certain remarks (particularly by Mr. Kellett) should be seen in their context. Lloyd's draw attention to the irony (having regard to subsequent events and the allegation in these proceedings of under-reserving) of the Inland Revenue's stance in 1984 that Lloyd's syndicates had over-reserved in the past, and could not justify the large size of the amounts which had been set aside in the RITC process.
Mr. R.J. Kiln delivered an address to the Insurance Institute of London on 6 December 1984 entitled 'Reserving Reinsurances to Close and Their Effect on Profits (1984)'. The views expressed were personal ones. Mr. Kiln said he believed that most long-tail reinsurance companies and many long-tail syndicates at Lloyd's, particularly in the early years of their accounts, were very under-reserved and that Lloyd's minimum audit percentage reserves could be misleading, and past experience showed this.
On 17 December 1984 at a meeting of the Members' Solvency and Security Committee Mr. Murray Lawrence (Chairman), in the course of discussion of amendments to the audit letter, expressed the view that Lloyd's should not pass judgment on syndicates' reinsurance to close. This should, he said, be left to managing agents and auditors. This point of view was representative of the then current thinking of the Committee/Council, and in my judgment reflected the distinction between the role of the Committee/Council and the duties and responsibilities of managing agents/underwriters and auditors of individual syndicates.
A meeting of panel auditors was held on 19 December 1984. Members of the MSSC addressed the auditors on factors affecting reserving at 31 December 1984. In particular Mr. Robin Jackson updated the auditors as to asbestos-related claims and pollution claims.
In a letter dated 21 December 1984 to Sir Kenneth Berrill, Mr. Peter Miller (as Chairman) said that he feared that many brokers were as ignorant as many underwriting agents as to their duties under the law of agency. Some steps had already been taken in the educative process but more were needed.

The Calendar Year 1985
In 1985 Mr. Peter Miller was Chairman of the Council of Lloyd's; Mr. Murray Lawrence was senior Deputy Chairman and Mr. D.E. Coleridge junior Deputy Chairman; Mr. Ian Hay Davison was Deputy Chairman and Chief Executive. 
On 10 January 1985 Mr. Miller (Chairman of Lloyd's) attended a meeting of the LUNMA Committee. Members of the LUNMA Committee emphasised that there was a real capacity problem in the non-marine market. Compared to the previous year, rates had improved and business volume had increased and this, coupled with the effect of the sterling/dollar exchange rate, could easily lead to syndicates exceeding their PI limits. The general view of the LUNMA Committee was that some solution to the problem was urgently required: it was unacceptable to consider ceasing underwriting simply because current capacity limits were reached, as they would be early in the year at the present rate. Mr. Miller said that all the solutions suggested were being examined by the MSSC. He agreed that flexibility was needed to enable underwriters to take advantage of the improved business climate. While emphasising the importance of maintaining security, Mr. Miller believed there was possible scope for adjusting the existing PI:security ratio. He also stressed the importance of increasing capacity by introducing more Names during the course of the year, and persuading these and existing Names to take more non-marine business. Mr. Miller believed that LUNMA had an important marketing task to perform in this respect.
On 21 January 1985 a Paper was before the MSSC (Chairman Mr. S. R. Merrett) detailing various proposals which had been put forward as possible solutions to the 1985 capacity problem, which was caused by the general upsurge in rates and the continuing weakness of sterling.
On 8 February 1985 the MSSC reported to the Committee of Lloyd's on the means by which the anticipated shortage of capacity for 1985 might be overcome or alleviated. As part of a fact finding exercise a Corporation of Lloyd's staff team had interviewed a number of underwriting agents to ascertain whether they considered there was a problem and, if so, to obtain their views as to how it might be dealt with in the short term. There was general agreement that a shortage of capacity existed, particularly in the case of the non-marine and aviation markets. The representations made contained a broad spread of views, some urging concessions and others urging that the market must establish its own levels. For 1986 all agents stated that they were planning to increase the number of Names and the premium limits of current Names. In its report the MSSC said that it appeared that notwithstanding the likelihood of a mixed result for the 1982 account there was likely to be a further substantial increase in membership for 1986. The MSSC hoped that this would continue to receive every encouragement. The MSSC was unable to make specific recommendations to assist the 1985 capacity problems of the market which would not impact on security, or cause unacceptable administrative burdens. It was recognised that the Committee and/or Council might feel it necessary to take a different view and should that be the case, it was recommended that certain security measures should be taken to counter any adverse comment.
In March 1985 Papers from a Technical Briefing Conference entitled 'The Future of Lloyd's' were published. 
Mr. J. Bannister of Risk Research Group in his Paper referred to Computer Leasing, the Avondale Gas Carriers and the blocking and trapping losses in the Shattl el Arab each of which was within about US$400 - 500 million. He added "The bigger disasters are the liability catastrophes of asbestosis and similar type with a likely cost more than ten times as great." 
In his Paper Mr. Ian Hay Davison (Deputy Chairman and Chief Executive) said that the real purpose of Lloyd's was insurance and that the Council had been fortunate to have been occupied with reforms just when the market seemed to have turned and, for the first time in many years, underwriters were wearing smiles.
In a Paper entitled 'Non-Marine Underwriting Today and Tomorrow' Mr. R.D. Hazell, Mr. F.R. White and others said that as far as asbestosis was concerned it was a well known fact that the market was faced with bills of enormous proportions brought about from a totally unexpected source, where numbers of policies issued over a period of many years were considered to be the subject of a continuing loss event or occurrence, which the underwriter knew nothing at all about until some 20 or 30 years after the event.
Mr. A.C.L. Sturge as an external Name who had been involved with the ALM since its inception, in a Paper entitled 'Lloyd's - An Outside Member's View' said that Lloyd's was no longer a rich man's club in the same way it was 20 years ago. No longer was the membership of Lloyd's a cosy club made up of old Etonians, wealthy landowners and working Names. There were women members, overseas members, a large number from the professions and industry. These people joined Lloyd's because they saw it as a very sound investment. Mr. Sturge said that Names quite rightly wanted to spread their risk around the market and added "Woe betide the agent who does not realise this and puts Names exclusively on his own managed syndicates. Agents nowadays are put under scrutiny by their Names, not only with regard to performance of different syndicates...but also with regard to the management of syndicates". Mr. Sturge referred to a gradual squeeze of the members' agents and said that Lloyd's must ensure that the marketing force which the members' agent provided for finding new Names was retained, and the Name must ensure that the members' agent was retained as an alternative to the managing agent. This was because a members' agent is a Name's broker and is able to maintain a more independent and objective view of the market than a managing agent who would be principally concerned with placing Names on his own managed syndicates. Mr. Sturge added that it was essential that a Name had an accurate and detailed profile of the syndicate he was participating in, in order that he could maintain the proper balance between classes of business and types of business within those classes. He should have knowledge (which it should be possible to garner from the annual report of the syndicate) as to the type of syndicate he was writing on. For instance, a Name might not wish to have a commitment to long-tail business, so he should be in a position to judge how large his commitment might be. Mr. Sturge concluded that Names could look forward with confidence to the latter half of the 80s in the knowledge that it should be a profitable period and one in which self-regulation would be seen to be working for the community as a whole.
On 12 April 1985 a meeting was held between Mr. S. Tovey (of MSSD) and Mr. K. Randall, who by then had moved to Merrett syndicates. At this meeting Mr. Randall told Mr. Tovey that a disaster had occurred on the 11 run-off policies written by Merrett syndicates 418/417 (see the Merrett judgment, table 2 page 416). He said there was no reinsurance protection whatsoever for 418/417 in respect of these policies. The recognition of the IBNR had only occurred since the last Solvency Test, and it was expected to be many years before claims would be payable by 418/417. Mr. Randall wanted to establish what help could be provided by Merretts to enable Names to pass the Solvency Test. He said that approximately 40% of Merretts' personnel were on 418/417, some with significant shares. The repercussions for Merretts could therefore be considerable. In addition Mr. Randall said that the syndicate would only be closed when a more certain outcome could be established. (In the event closure did take place. I refer to the Merrett judgment at page 349 to 373 where I considered the closure of 1982 into 1983 of syndicate 418/417. At page 361, I found that Merretts and in particular Mr. Merrett knew that a reinsurance to close figure could not be arrived at with a reasonable degree of accuracy/within a zone of reasonableness, and that Merretts should accordingly have left the year open). I suspect that if 418/417 had left its 1982 year open, this would have had a marked effect on the Lloyd's market and underlined the depth of the problems represented by asbestos-related and pollution claims. The extent to which subsequent events would have taken a different course is a matter of speculation, but the effect would have been significant.
On 19 April 1985 Mr. Ian Hay Davison (Deputy Chairman and Chief Executive) addressed the National Association of Accountants Conference in Paris. He said that Names had increasingly come to regard membership of Lloyd's as an investment and as a result they had begun to behave like investors, claiming increasing information about their underwriting.
As to audit arrangements Mr. Davison said:-
"...There was a continuing risk, not always avoided, that Panel Auditors at Lloyd's lacked independence from their clients... But there was a more difficult problem, the Panel Auditors were not in fact charged with carrying out an audit at all. Their duty was to assist by providing the Annual Solvency Certificate which merely shows that each Name has sufficient assets to meet his liabilities calculated in accordance with the formulae laid down by the Committee of Lloyd's. Agents, underwriters and the Committee of Lloyd's were all under the misapprehension that the work done by the Panel Auditors was an audit in the sense which you and I would understand it. But it was not, a fact which the auditors themselves, to give them their due, had protested from the very beginning. The accounts of an underwriting syndicate, and the determination of its profit, depend upon how much reserve is necessary to close the account. The figure for the closing reserve is provided by the underwriter in the form of the reinsurance to close. Some of the Panel Auditors at Lloyd's were still living in the days of "inventory at director's valuation" which used to be the way in which profit was calculated in manufacturing companies in the UK 30 years ago: they did not consider it part of their duty to audit the reinsurance to close. Under these circumstances is it any surprise that some of the auditors missed the scandals and failed to point the plunder that was going on. They were not charged with performing an audit to normal auditing standards and although they clearly had knowledge of some of the matters that were going on, they may well not have fully appreciated their implications and they did not see it as their duty to draw the Name's attention to what was afoot. Had they been larger firms, or wiser in the affairs of the world, or perhaps more willing to ask fundamental questions, then they might have exposed it quickly but the fact is, in most cases, they did not."
Mr. Davison went on to describe the accounting reforms introduced at Lloyd's which would, he hoped, ensure that should things go wrong again at Lloyd's the auditors would be under a strict duty and would be able to step in if necessary.
At a meeting of the MSSC (Chairman Mr. S.R. Merrett) on 30 April 1985 the subject of time and distance policies was discussed. It was agreed that Mr. Parkington should write to all Lloyd's auditors stating that a letter dated 1 April from the Manager of the UAAD to all panel auditors on the subject of time and distance policies, should now be read in the context of the current Audit Instructions, especially clause 2 paragraph (ix) and clause 6, first paragraph.
On 9 May 1985 Mr. E.E. Nelson made a speech in Boston which referred to the Super Fund legislation. "Many hundreds of sites have been used as dumps for toxic waste...the Federal Government is making a strenuous effort to clean up the sites and the costs thereof, which are very substantial, are being charged to those responsible for the dumping..."
I refer in this connection to the Merrett judgment at page 351 where I set out the perception as to pollution claims at this time. Pollution claims were recognised to be the next major problem for the market.
At a meeting of the Council of Lloyd's on 13 May 1985 the Chairman (Mr. P. Miller) reported that a Paper was to be sent to Council members shortly indicating the line which would be taken by the Chairs in forthcoming speeches which would encourage applications for membership of Lloyd's. This would take account of the need for increased membership as a result of the shortage of capacity and the conflicting adverse publicity arising from reported underwriting losses for recent years. A number of comments were made by members of the Council which indicated that there was a degree of concern about the current situation, particularly amongst UK Names.
On 14 May 1985 a meeting was held at Mr. Gilkes' request to advise Lloyd's (Mrs. C. Shorthouse AARD and Mr. S. Tovey MSSD) of the audit report which Ernst & Whinney intended to give in respect of syndicate Outhwaite 317. The background to the situation was summarised by Mr. Gilkes and Mr. McNamara of Ernst & Whinney.
On 17 May 1985 Mr. Outhwaite and Mr. Gilkes attended a meeting with the Deputy Chairmen, Mr. Lawrence and Mr. Coleridge. Mr. Stephen, Mrs. Shorthouse and Mr. Parkington attended the meeting. After the meeting both Deputy Chairmen stressed that it would be quite wrong for Lloyd's staff to indulge in any bullying of the type alleged by Mr. Outhwaite and Mr. Gilkes. Mr. Stephen stated he was surprised at the statement made by Mr. Gilkes and undertook to clarify the position.
The 1982 year of syndicate 317/661 was subsequently left open (see 1 July below).
The Wellington Agreement in respect of asbestos bodily injury claims was signed in June 1985.
A General Meeting of members of Lloyd's was held on 26 June 1985. Mr. Peter Miller (Chairman) said in his speech that the international insurance market had been, and to a great extent still was, going through a very severe crisis. The problem lay in the utterly disastrous results of large sections of the American casualty book. A handful of Lloyd's syndicates (out of the 431 trading in 1982) had reported heavy losses and some, very severe losses indeed. Mr. Miller said that the effectiveness of the regulation of the underwriting agency system had been called into question and that the Council of Lloyd's was accused of sitting on its hands and failing to help the Names on the troubled syndicates. Mr. Miller said that Lloyd's as a market had traded at an overall profit in every year since 1948, save three. Mr. Miller sought to answer three questions, first as to the Council's treatment of troubled syndicates (for example the Peter Cameron-Webb syndicate), second the general effectiveness of the regulatory system in relation to underwriting agents and third, the standing of Lloyd's in the world of insurance. As to the question whether a member or prospective member of Lloyd's could trust the system which regulated the market ("Could it happen me?"), Mr. Miller listed measures and referred to other reforms which he said added up to a modern and efficient system of regulation in which Names could readily put their trust. The latest figures showed that new applications for membership for 1986 continued to run 20% above the numbers for 1985. At the same time, about 9,000 existing members were asking to increase their premium income limits for the next year. Mr. Miller added "It is, as we all know, almost impossible to speak of the "right" time to join the market. That said, I believe that this is one of those times."
On 1 July 1985 Mr. R.H.M. Outhwaite wrote to Names on syndicate 317/661 "Following the publication of our accounts we have discussed with many agents the implications of the qualified audit report. We have reconsidered the matter and decided to leave the 1982 year open. ...It is our considered view that...the 1982 year will prove to be profitable."
In July 1985 Sir Peter Green wrote to Mr. Miller on the subject of a possible settlement with the Inland Revenue. In his letter Sir Peter Green said that it would not be easy to convince agents to accept any settlement because:-
"...We feel we should have either placed far more to reserve or made the policies far larger to meet the back years claims which we now have to pay... The 1982 results were "frankly ghastly". ...1983 and future years may be even worse for old syndicates even if the pure year is profitable... The only thing that will save us is the very large earnings on the "Fund" which will go a long way to make up the past under-reserving... There are plenty of horrors in the pipeline and they must be reserved even if figures are not available. The "true and fair" requirement should assist in this... It is perhaps fortunate that the over payment of past profits is falling for recoupment from a far larger number of current Names".
In his statement as Chairman of Lloyd's in Lloyd's Global Report and Accounts 1984 Mr. Peter Miller said:-
"...Of the seven major classes of business, three show a substantial improvement as compared with last year, three show a substantial deterioration and one a modest deterioration. While the marine account is the best for some years and four of the other six major accounts show reasonable profits, the general (non-marine) liability account shows an enormous loss. One wonders what Mr. Micawber, with his nose for which side of the financial line happiness lay, would have made of that particular result. Certainly his recipe for putting things to rights by waiting "in case anything turned up" cannot commend itself to the underwriters whose duty it is to correct this disastrous state of affairs. Figures such as these make it obvious that underwriters must take stringent remedial action as indeed they are. It is worth repeating that a combination of three things is needed, particularly in the all important American casualty business; first, a realistic rating level; second, a reformed policy wording embracing, where needed, a claims made basis for claims and an overall limit, including legal costs; and third, a measure of tort law reform. Without real progress in all three areas, it is hardly to be wondered at if underwriters increasingly withdraw from this class of business, with the result that certain industries will be left without the insurance coverage which they need to continue in business, to the detriment of society in general. ..."
An accompanying report from Mr. Richard Hazell (Chairman LUNMA) included the following:-
"The figures produced for the close of the 1982 Account do not make happy reading from the non-marine market's viewpoint, producing an overall loss of £219m after taking into account substantial investment earnings. It must be remembered when reviewing these figures that they relate to the experience of the insurance market of three years ago when the insurance industry generally was at its lowest ebb for very many years, if not in its entire history.
Undoubtedly, much of the blame for these poor results can be attributed to the need for underwriters to increase reserves for outstanding losses in the light of the more liberal attitudes adopted by the American courts, very often in pursuit of the deep pocket theory. This is particularly apparent, but is not unique, in relation to those claims affecting asbestosis and pharmaceutical products. New laws regarding liability following pollution and other forms of environmental impairment could also produce problems for underwriters as these new laws appear to apply retroactively, thus making it very difficult to underwrite against such circumstances.
It is to be hoped that the newly formed asbestosis facility, which after many years of being discussed has now been established, will enable settlement of claims to be made at a faster rate with a consequent saving of legal expenses. ..."
A document entitled 'ALM. 1982 Lloyd's Syndicate Results' published in September 1985 stated that Lloyd's Global Report and Accounts 1984 "have been distributed to all Names this year for the first time".
On 14 October 1985 Mr. Peter Miller (as Chairman) wrote to Names to report that the Council of Lloyd's had finally agreed a central settlement with the Inland Revenue. The letter explained why the Council had arrived at such a settlement and indicated its main terms. The settlement was for the sum of £42.5 million, together with interest from 1 August 1985. Roll over policies would be terminated as quickly as contractually possible. At the same time, a satisfactory regime was being established for the accounting for time and distance policies. The settlement resolved the tax treatment for 1982 and prior years of account regarding roll-over policies, time and distance policies and reinsurance to close.
On 11 November 1985 Mr. Ian Hay Davison (Deputy Chairman and Chief Executive) gave six months notice of resignation to the Council of Lloyd's. In his letter containing notice of resignation Mr. Davison said that when he came to Lloyd's in February 1983 he set himself three principal objectives: to bring to book those in the Lloyd's community who had misbehaved themselves; to establish a new regulatory framework for Lloyd's, based upon higher standards of disclosure, accounting and auditing; and to improve the staffing, organisation and management of the Corporation. He undertook this assignment for a term of three to five years and saw himself principally as an agent of change. His conclusion in November 1985 that it was time to resign was prompted by the Council's recent initiation of an internal inquiry (Chairman Sir Kenneth Berrill) into the structure of Lloyd's, which had started discussions about changing the Terms of Reference and status of the post of Chief Executive. The preparation of the Corporation's evidence for this inquiry had revealed divergent opinions about the continuing need for the Chief Executive to be independent and responsible directly to the Council.
On 13 November 1985 the Committee of Lloyd's considered a Paper containing recommendations put forward by the MSSC for establishing criteria under which anticipated recoveries under Names' personal stop loss reinsurance policies might be taken into account in full for Solvency Test purposes. In the course of discussion Mr. Coleridge said that in his opinion if personal stop loss policies were barred by Lloyd's it was likely that the membership figures would be halved. Mr. Barber raised concern that stop loss policies were being written by relatively few underwriters within the market. He feared that the potential liability, in the event of a large call, would fall on a relatively small number of Names who might not have the means to satisfy all claims.
At the same meeting the Committee considered a Paper containing the recommendations of the MSSC in regard to the minimum reserves to apply for the Solvency Test at 31 December 1985. In relation to non-marine "All Other" US dollar, Mr. Murray commented that the existing system for establishing the scale of reserves for this classification was, in his opinion, obsolete. Mr. Barber suggested that in future this classification should be taken out of the published scales of minimum percentages in view of the lack of homogeneity in the business underwritten by syndicates in their non-marine "All Other" US dollar accounts.
By November 1985 there was developing concern in relation to "missing markets" (coverages placed in the London market for which the insured had a certificate or secondary evidence, but where the brokers were unable to identify the market with which the risks were placed). There was concern as to "missing markets"not only in respect of asbestos-related claims, but also with regard to future claims arising out of environmental pollution.
In November 1985 the Report of the Clucas Working Party on Extended Warranties and Consumer Guarantees was published.
A memorandum for the MSSC dated 16 December 1985 reviewed returns made by syndicate auditors (AU 38s) in connection with the 1984 Solvency Test. Syndicates whose reserves were deficient by over 15% were highlighted and individual explanations set out in an appendix. The syndicates identified included syndicate 895 (Spicer &White), five former PCW managed syndicates (plus two stop loss syndicates impacted by PCW losses) and two Robert Napier syndicates formerly managed by Oakeley Vaughan. Fifteen of the 24 syndicates whose reserves were deficient by over 15% no longer underwrote. Of the non-marine syndicates, many explained the inadequacies as being due to under-reserving in respect of latent disease, product and environmental liability and pollution claims. Three of the six marine syndicates attributed the deficiencies in reserving to the same type of problems. Three syndicates referred to a specific reinsurance contract with Transit Casualty Insurance Co of California.
A letter from the DTI to the MSSC dated 18 December 1985 referred to the subject of discounting of reserves. The DTI said that so far as insurance companies were concerned, discounting was not favoured. The DTI was prepared to tolerate it for long-tail (over 10 years) business provided its use and the underlying assumptions were disclosed. "Similarly for Lloyd's reserving we would look for the practice to be dealt with explicitly so that suitable conditions can be specified and the underlying assumptions exposed."
At a Special Meeting of the MSSC on 24 December 1985 Mr. Parkington reported that the DTI had commented on the MPRs proposed by the Committee of Lloyd's. The DTI had looked at the settlements and percentage reserve figures on a purely statistical basis and would consider any arguments which the MSSC could put forward to support the minimum percentages proposed by the Committee of Lloyd's. The approach which the DTI had adopted was different from that adopted by Lloyd's. The DTI had looked at the reserves for individual years of account, rather than the broad overall scale favoured by Lloyd's.
As to non-marine "All Other" (US dollar) the MSSC pointed out that the Johns Manville settlement had affected many of the older years and was almost certainly the reason for the very high settlements in years 16-18. Further, changes to "claims made" forms of policy for professional indemnity and medical malpractice risks were producing an earlier settlement pattern on the 1981 and 1982 accounts. Mr. Merrett commented that it would be inappropriate to increase the percentage at year end 4 from 70% to 120%, as this could penalise some syndicates. Arguments should be put to the DTI for not increasing the percentage reserve which, Mr. Merrett suggested, could include the change in the way in which this class of business had been written and also the Johns Manville settlement. Attention was drawn to the fact that the provision of the Benjamin formulae would have indicated the overall market experience for this class to those syndicates not possessed with data for the earlier years. It was felt that further research into this class of business was vital in order that a reasoned argument could be made to the DTI.

The Calendar Year 1986
In 1986 Mr. Peter Miller was Chairman of the Council of Lloyd's; Mr. Murray Lawrence was senior Deputy Chairman and Mr. M.H. Cockell junior Deputy Chairman; Mr. Alan Lord was Deputy Chairman and Chief Executive from March. 
On 10 January 1986 The Rt. Hon. Leon Brittan QC MP announced his intention to establish a Committee of Inquiry into the regulatory system of the Lloyd's insurance market. A Committee of Inquiry into Regulatory Arrangements at Lloyd's (Chairman Sir Patrick Neill Q.C.) was appointed with the following terms of reference:-
"To consider whether the regulatory arrangements which are being established at Lloyd's under the 1982 Lloyd's Act provide protection for the interests of members of Lloyd's comparable to that proposed for investors under Financial Services Bill".
The Committee of Lloyd's at a meeting on 22 January 1986 considered a number of documents on discounting of reserves for solvency purposes, including the report of a Working Party established in November 1985 to consider how the Instructions for the Guidance of Lloyd's Auditors should cover the subject of discounting of loss reserves. The Chairman of the Working Party (Mr. Murray) stated that the view of the Working Party was that Lloyd's could not remain silent on this issue. The continuing requirement to expand the capital base of Lloyd's from sources not already exposed, called for assurance that all undischarged liabilities had been fully reserved. The Committee agreed with the recommendation in the Working Party report that discounting of loss reserves for the time value of money should not be permitted at Lloyd's for solvency purposes and agreed certain specific recommendations. It was noted that the treatment of time and distance policies was covered by the agreed recommendations and by the provisions of the Instructions for the Guidance of Lloyd's Auditors.
A meeting of recognised auditors was held on 29 January 1986. There was a commentary on major issues from representatives of the four major markets. Mr. R.A. Jackson updated auditors on the non-marine market. In particular he referred to the Asbestos Claims Facility, the Johns Manville settlement, new areas of claims (railroads, brakelinings etc), DES and environmental/pollution claims.
By letter dated 27 February 1986 the Neill Committee invited comments on a number of matters including:- whether the information supplied to prospective Names was sufficient to enable them to make informed judgments about the consequences of membership of Lloyd's and the performance of different syndicates; whether in advising prospective Names about the consequences of membership sufficient account was taken of personal circumstances; problems of potential or actual conflict of interest; the accounting requirements for syndicates; and whether it was necessary or desirable to establish some means of compensating Names in the event of serious underwriting losses which arose otherwise than from the normally accepted risks of the business.
In March 1986 a Working Party chaired by Sir Kenneth Berrill presented a report on Lloyd's Corporate Structure.
On 10 March 1986 Mr. Alan Lord attended his first meeting of the Council of Lloyd's as Deputy Chairman and Chief Executive.
In the course of his evidence to the Neill Committee on 18 June, Mr. Miller said there was "a quite widespread lack of perception or appreciation of the full meaning of the law of agency amongst our underwriting agents."
At a meeting of the AASC on 24 June 1986 Mr. C.B. Gough (Chairman) introduced a Paper on the disclosure of information to prospective Names. The AASC was responsible for policy proposals in respect of financial information and disclosures. Three types of information had been identified, Lloyd's material, members' agent disclosures and syndicate information. 
On 1 July 1986 Mr. Miller in evidence to the Neill Committee referred to "small syndicates" to define a device whereby the abuse was practised of preferring the interests of one small set of Names, notably but not exclusively the active underwriter and his cronies, over the interests of a larger set of Names for whom the managing agent was responsible, in defiance or ignorance of the law of agency. The mischief was preferring one syndicate over another, whether in writing risks, allocating expenses or dealing with reinsurance. Mr. Miller gave six examples of small syndicates. He said five of those had good commercial reasons for their existence. He was not sure about the sixth.
At a meeting of the SSC on 7 July 1986 (Chairman Mr. C.K. Murray) in a discussion of reinsurance to close and premium income limits, reference was made to the risk exposure where syndicates accepted the run-off of other syndicates. It was suggested that there should be a maximum amount of a Name's limit which could apply to this business.
On 11 August 1986 the Council resolved that the Report of the Committee of Inquiry (known as the Davis Inquiry after its Chairman, Mr. John Davis) should be published. The Committee of Inquiry had been appointed in June 1985 by the Council to look into and report on the management of syndicates by Richard Beckett Underwriting Agencies Ltd and the handling of Names' affairs by RBUA for the period December 1982 to June 1985. These syndicates were formerly managed by PCW Underwriting Agencies Ltd. The Davis Inquiry reached two main conclusions. First, that there was no evidence of fraud or gross negligence by the management of RBUA during the period covered by the Inquiry. Second, primary responsibility for the losses incurred by the Names in respect of the 1982 underwriting year rested with the former management (PCW). 
In his statement as Chairman of Lloyd's in Lloyd's Global Report and Accounts at 31 December 1985 Mr. Peter Miller said:-
"...
While 1983 is still within the trough of poor results...it is nevertheless pleasing to be able to report at least an overall profit of £36 million or £179 million excluding the PCW syndicates...
For 1983, of the nine statutory categories in which we make our returns, eight show an overall profit ranging from the modest to the satisfactory. The ninth tells a different story. As last year, the general liability account generates approximately 12 per cent of the total premium income for 1983 - and, for the same year, produces 100 per cent of our losses. Were the underwriting environment for this class of business not to have improved it would be inconceivable that any underwriter would remain in the class. ..."
An accompanying report from Mr. Robin Jackson (Chairman LUNMA) included the following:-
"It is disappointing to report that, once again, the non-marine market has produced an overall loss after taking account of investment earnings. The loss of £231 million is somewhat higher than 1982 and represents a loss of 21 per cent on a total non-marine premium income of £1,074 million.
Although the overall market results of the year 1983 on its own were thoroughly unsatisfactory, they have been exacerbated by the need of a number of syndicates to set aside additional reserves in respect of latent disease claims such as asbestos for the prior closed years of account. The year also suffered a number of catastrophes including winter weather losses and Hurricane 'Alicia' in the United States. ...Hurricane 'Alicia'...may ultimately turn out to be the largest loss yet suffered by the market from one storm.
The US based liability account has yet again been the cause of most of the market's difficulties as, once again, it was necessary for underwriters to increase reserves for asbestos-related losses. Although the Asbestos Claims Facility - set up with the support of Lloyd's - is making significant savings in the legal costs involved, this is to some extent offset by there being no slowing down in the number of new suits being brought. ...
In summary, after some very gloomy reports from my predecessors, I genuinely believe I can be considerably more optimistic than has been possible for a long time. I hope that over the next few years the non-marine market will be able to return to the kind of results of which underwriters may be proud. It should not be assumed, however, that non-marine underwriting has suddenly become easy: it is just that some badly needed corrections have been made and will continue to be made enabling underwriters to be more in control of their own destinies."
In a letter dated 3 October 1986 from the Chairman of LUNMA to the MSSD on the subject of proposed scales of minimum reserves the following appeared under the heading non-marine "All Other" US dollar:-
"...This category is far too broad in that it does not in any way differentiate between, for example, direct business and reinsurance and... there is no clear distinction between business written on a claims made basis and business written on an occurrence form. Nor... does it differentiate between business written on a flat or low level excess basis and that written on a high excess basis. ...(LUNMA's) suggested recommended changes in this audit classification... (were) spelt out in our letter of 2 September 1986."
On 2 December 1986 Mr. C. K. Murray (Chairman SSC) wrote to the Chairman of Lloyd's setting out some personal views about action that should be taken in the near future. Mr. Murray said there had been intense pressure over the last few years to present the attractive and successful face of the Lloyd's market. This may have tended to create a climate where growth in membership and growth in the premium volume of the market were seen as highly desirable ends in themselves. He suggested areas where strengthening should be implemented for the 1989 account (the members deposit, earmarking of deposit, defaulting Names, reinsurance to close and Central Fund). Mr. Murray said that the current queue of Names to join almost every reasonably successful and reliable agent and syndicate suggested that a strengthening in Lloyd's solvency margins would not cause an unacceptable flight of Names or loss of capacity. The market had not been tested over the last 20 years by events that could present the catastrophic potential that the market responded to in the 1906 earthquake or the wind storms of 1938, 1950, 1954 and 1965. Much of the strain imposed by latent disease losses had been absorbed by Lloyd's reinsurers. In the future those reinsurers might well be less able or less willing to absorb the same proportion of Lloyd's gross losses.
At a meeting of the Committee of Lloyd's on 10 December 1986 Mr. Tovey reported upon the comments of the DTI regarding the scales of MPRs, which had been submitted to the DTI for approval.
At a meeting of the AASC (Chairman Mr. C.B. Gough) on 17 December 1986 guidance notes on time and distance policies were discussed. It was agreed that certain amendments should be made and the guidance notes submitted to the Committee of Lloyd's for approval.

The Calendar Year 1987
In 1987 Mr. Peter Miller was Chairman of the Council of Lloyd's; Mr. Murray Lawrence was senior Deputy Chairman and Mr. A. Parry junior Deputy Chairman; Mr. Alan Lord was Deputy Chairman and Chief Executive. 
The Report of the Committee of Inquiry (Chairman, Sir Patrick Neill Q.C.) entitled 'Regulatory Arrangements at Lloyd's' was presented to Parliament by the Secretary of State for Trade and Industry in January 1987. The Report addressed:- self-regulation at Lloyd's; the recruitment process; syndicate membership; the legal relationship between Names; members' agents and managing agents; complaints and disputes; indemnity and compensation schemes; conflicts of interest; the registration process - underwriting agents; Lloyd's brokers and syndicate auditors; monitoring and enforcement; investigation and discipline; and the constitution. A list of 70 recommendations involved changes in Lloyd's rules or the constitutional framework within which they were made. In paragraph 1.4 the Report said:-
"...the Council have acted with energy and determination in using their powers. They have transformed self-regulation at Lloyd's. The many byelaws, and associated regulations and codes of practice introduced since 1982 are eloquent testimony to the reforming zeal of the Council. We know of no profession or equivalent organisation which has accomplished such a major programme of reform in such a short timescale."
At a meeting of the Committee of Lloyd's on 21 January a Paper developed by the AASC as to proposed guidance in relation to time and distance policies was discussed.
A Special Meeting of the Council of Lloyd's on 22 January 1987 considered the core recommendation in paragraph 1.9 of the Neill Report that the composition of the Council should be changed. This involved reduction of the number of working members to 12, retaining the number of external members (8) and doubling the number of nominated members to 8. After discussion the Chairman said he would make it clear to the DTI that the core recommendation was accepted subject to transitional arrangements.
A memorandum dated 26 January 1987 by MSSD/Advisory Department for consideration by 'O' Group on the subject of the Outhwaite run-offs concluded that the implications of this area of dispute were far-reaching for Lloyd's, especially if further litigation commenced.
On 27 January 1987 Mr. Peter Miller wrote to members on the subject of the Neill Committee Report, concluding that the Report must be used "fully to restore...necessary confidence in the regulatory system at Lloyd's."
On 29 January 1987 R.H.M. Outhwaite (Underwriting Agencies) Ltd wrote to all direct Names informing them that "We are obliged to question the basis on which certain of (the run-off policies written by 317/661) were placed. We have kept Lloyd's informed of the situation...".
A meeting of recognised auditors was held on 4 February 1987. Mr. R. Jackson provided a commentary on non-marine market issues. He said that the main concern was still asbestos. It had been hoped that there would be a drop in claims in 1986 but this had not been evident; 900 new cases per month were reported in 1985, while 1500 new cases per month were reported in November and December 1986. Mr. Jackson said that some of the more recent claims might prove to be less serious than earlier claims, with fewer claims relating to cancer or asbestosis. Mr. Jackson reported that the Asbestos Claims Facility had settled claims at a higher rate than was expected. During the course of 1986, the London market expended approximately $70 million in Facility billings and to some extent this figure was affected by accelerated cash flow. Mr. Jackson emphasised that even though there could be acceleration on a temporary basis, reserves established in underwriters' books would always be well in excess of payments made. Defence costs had been reduced to 30% of the overall cost of the claim by the Facility, but the reduction was not as much as anticipated. Known claims would account for a 25-30% increase in asbestos reserves at 31.12.86. Much of this increase would come from reinsurance and retrocessional contracts.
As to environmental pollution, Mr. Jackson said that environmental pollution would account for increases in some reserves. The market would end up paying a lot on pollution but policy wordings might provide better defences than on asbestos.
A document prepared by the Regulatory Services Group dated 11 February 1987 compared minimum reserves with actual reserves. In the case of non-marine "All Other" US dollar business the actual reserve as a percentage of minimum reserve was 181.4%.
At a meeting of the Committee of Lloyd's on 11 March 1987 a Paper seeking approval of the issue of instructions to the market covering settlement statistics, including the collection of information relating to certain reinsurances which might affect those statistics, was considered. The Committee approved the draft documentation for issue to managing agents, along with the normal settlement forms for the year ended 31.12.86.
On 12 May 1987 Mr. R.R.S. Hiscox wrote to Mr. Peter Miller to say that the sentence in respect of Sir Peter Green was so light that it had been rightly criticised. The letter concluded - "Radical reform is out of the question until forced by circumstances, so let us continue to raise our capital from housewives with bank guarantees on the family home and suffer from the consequences at each downturn in the market." 
On 19 August 1987 the Committee of Lloyd's was requested to approve the Global Report and Accounts as at 31 December 1986 under authority delegated to it by the Council. As to the draft of the Chairman's statement Mr. Merrett said that it was important to avoid the risk of alarming Names as regards the US casualty scene. This comment has caused me concern.
In his statement as Chairman of Lloyd's in Lloyd's Global Report and Accounts at 31 December 1986 Mr. Peter Miller said:-
"the overall results for 1984, constitute a record profit for the Lloyd's market of almost exactly £300 million, excluding PCW, while the outlook for 1985, at least overall, looks likely to improve on that figure and 1986 is spoken of, almost reverently, as a vintage year...
However, there is one factor which continues to dominate the whole Lloyd's market and indeed it is perhaps no exaggeration to say it continues to dominate the whole world insurance scene. I refer, of course, to the general liability account. I have in previous years drawn attention to the enormous losses made in this area and I must do so again. The overall loss on this account shows a welcome reduction from last year's figure. However, I have to say that the problems facing those underwriting this account, while perhaps reduced as a result of the reforms in the law of tort in the United States, are nevertheless far from solved. Two facts seem to me to stand out; first, that this account produces 12 per cent of Lloyd's premium income and almost 100 per cent of our losses. Second, almost exactly 50 per cent of our reinsurance to close (£2,000 million out of £4,000 million in round figures) has to be devoted to the claims outstanding within this account; on a premium income base of some £400 million any under-reserving must have a sharply disadvantageous effect. In spite of all the efforts that have been made, quite extraordinary court awards and judicial interpretations continue to come from in particular, the American scene.
There are two quite different problems in the whole of this area. First, whether the amounts put aside to meet these claims will be sufficient, a problem of the past which underwriters must do their best to solve. Second, how far it is prudent to commit underwriting resources in the future to a class of business hedged about with such dangers and uncertainties. The problem extends beyond the insurance industry; society, that is to say the general public and its political leaders, will have to reflect and should, sooner rather than later, act to clarify how they feel that their damaged citizens should be fairly compensated."
An accompanying report from Mr. Bryan Kellett (Chairman LUNMA) included the following:-
"The results of the non-marine market are, once again, dominated by the loss in the general liability section, which for the 1984 year of account amounts to £170 million on a premium income of £365 million. A substantial proportion of that loss results from the need, as in previous years, to add to the reinsurance to close item as the result of reassessment of liabilities on business written in prior closed years of account.
This class of business, much of which comprises policies issued to insureds in the United States of America, continues to be adversely affected by certain features of the legal system of that country.
One such feature is the contingent fee system whereby lawyers are rewarded by sharing in the damages which they are able to secure for their clients, often leading to spurious cases being pursued. Another is the system of awards by juries in civil damages cases where they are encouraged to think of the insurance industry as having a "deep pocket" from which victims may be compensated, regardless of whether or not there is fault on the part of insured defendants.
The problems are considerably compounded by the time which may elapse between the occurrence giving rise to injury and an eventual court ruling that this was in some way due to the negligence of the policyholder.
Thus, underwriters of this class of business are faced with two problems. Firstly, they are being called upon to indemnify insureds in respect of losses for which they had not expected to be held liable. Secondly, the computations of the amounts - which will be needed to pay losses already incurred and which should be charged as premium on new business - will be based on inadequate and unreliable data. ..."
At a meeting of the SSC on 17 September 1987 Mr. Savage introduced a Paper reporting on the review of returns made by syndicate auditors on Form AU38 in connection with the 1986 Solvency Test. The Chairman of the SSC (Mr. Murray Lawrence) suggested that almost every old non-marine syndicate would be expected to have shown inadequacies in reserves of some degree. The meeting concentrated on those syndicates appearing deficient by more than 15% (14 non-marine and 7 marine syndicates). Of those deficient by more than 15%, most were syndicates in run-off. It was agreed that representatives of those syndicates which did not provide adequate explanations for inadequacies of over 15%, would be called for interview with the senior Deputy Chairman.
The storm of October 1987 "cut a swathe across southern England and western Europe".
At a meeting of the SSC (Chairman Mr. Murray Lawrence) on 12 October 1987 it was reported that LUNMA had suggested that the Solvency Test Instructions should stress more firmly that the MPRs were the absolute minima to be reserved and that most syndicates should be reserving at levels significantly above the minima, particularly in the case of long-tail business. 
At a meeting on 27 November 1987 the Council of Lloyd's considered the extent of any duty which it might have to monitor the underwriting performance of managing agencies. The general consensus was as follows. The Council should not take additional powers (and therefore responsibility) beyond those implicit in the existing byelaws, to monitor the exercise by managing agents of the underwriting functions entrusted to them by Names. Beyond the primary duty of the managing agency board, a further responsibility in this area lay with the members' agents. Council did not wish to derogate from either the duty of the managing agents or the duty of the members' agents by intervention, other than in the most exceptional circumstances.
The PCW offer went unconditional on 19 June 1987 when it had been accepted by 90% of those to whom it had been made. By the end of 1987 over 99% of those to whom the offer was made had accepted it.

The Calendar Year 1988
In 1988 Mr. Murray Lawrence was Chairman of the Council of Lloyd's; Mr. D.E. Coleridge was senior Deputy Chairman and Mr. A. Parry was junior Deputy Chairman; Mr. Alan Lord was Deputy Chairman and Chief Executive.
At a meeting of the Committee of Lloyd's on 27 January 1988 Mr. Merrett expressed concern that substantial increases in asbestosis/pollution claims were being notified by the AWP and ECG. However, the SSC did not have access to figures showing the overall position but had to rely upon the reports of individual syndicates. The level of reserving would require significant increases for the next year and future years and Lloyd's needed greater comfort that agents were adopting adequate figures in their accounts. In Mr. Merrett's view this was a problem that needed to be addressed centrally. The ECG was finding difficulty in getting market people to serve. In the ensuing discussion the point was made that the level of reserving was a matter for the managing agents and should not become the subject of instructions from Lloyd's centrally. At the conclusion of the discussion it was agreed that Mr. Merrett would report upon the outcome of the annual meeting to be held the following week with Lloyd's recognised auditors.
At a meeting of the Committee of Lloyd's on 10 February 1988 Mr. Merrett reported that the annual meeting of the recognised auditors had taken place and had proceeded satisfactorily. Mr. Robin Jackson, however, had been referred to as a pessimist as regards asbestos/environmental pollution. Mr. Merrett had tried to explain that Mr. Jackson was in fact being optimistic, considering the background against which he was working.
A Paper on the subject of "Missing Markets" was prepared for consideration by the CEG on 11 March 1988.
At a meeting of the Council of Lloyd's on 13 April 1988 the Chairman (Mr. Murray Lawrence) reported that the Committee had discussed the Outhwaite situation and had agreed that as regards the solvency position Lloyd's should not double guess the auditors, that there were no grounds to justify Lloyd's intervention on 'fit and proper' criteria, and that it was an unattractive option for Lloyd's itself to intervene and offer a cap on the policies.
In about May 1988 the Freshfields Report into the underwriting activities of Outhwaite syndicate 317/661 was completed.
The 1985 year of Merrett syndicate 418/417 was left open in mid 1988.
At a meeting on 8 June 1988 the Council of Lloyd's received a presentation from Mr. M.V. Williams, Chairman of LUNMA.
On 20 June 1988 Freshfields circulated to Names on Outhwaite syndicates 317/661 for the 1982 year of account, a copy of their Report into the writing of run-off policies by those syndicates.
At a meeting of the Committee of Lloyd's on 22 June 1988 Sir Peter Miller reported that at a recent meeting of the Outhwaite Names, criticism had been voiced that Names had not been sufficiently warned of the likelihood of open years.
On 29 June 1988 at a General Meeting of members the Chairman (Mr. Murray Lawrence) reported that a broadly acceptable regime had been agreed with the Inland Revenue as to the tax treatment of reinsurance to close.
As to the immediate future Mr. Lawrence said:- 
"Present market conditions, uncomfortable though they may be, are overshadowed by the need to provide for the development of past year claims, some as yet un-notified and unquantified, springing mainly from long-tail liability business in the United States. The deterioration in claims in this area over the past 12 months and the provisions that have had to be made as a result, have reduced in many instances the anticipated profit last year for the 1985 account. They are, in addition, responsible for the two current major problem areas in the market namely syndicate number 317 (Outhwaite) for the 1982 account and number 553 (Warrilow) for the 1984 account."
In July 1988 an explosion destroyed the North Sea oil production platform, Piper Alpha.
At a meeting on 27 July 1988 the Committee of Lloyd's considered a Paper which provided an analysis of run-off years of account as at 31.12.87 and which presented various options that had been suggested with a view to alleviating the resulting difficulties for Names. The Paper stated that there were 76 syndicates with years of account in run-off, and a total of 120 years in run-off, of which 23 were showing a profit. These figures excluded syndicates managed by AUA 2 (Sasse) and AUA4 (PCW). The discussion Paper said that claims arising from asbestosis and pollution risks, together with other US liability business, appeared to explain why 56% (67 in number) of the run-off years of account remained open. A further 13% of run-off years of account (15 in number) had been left open because of problems associated with run-off reinsurance policies written with or by Outhwaite and Merrett, and 9% as a result of "general uncertainties".
The Chairman said that a particular characteristic of the problem syndicates was their exposure to US liability business. It was difficult to write this kind of long-tail business on a one year basis, with a three year period of account. At the conclusion of the discussion, the Chairman said that he would take the Committee's views away and consider them before deciding how best to progress this matter.
At the same meeting Mr. Merrett advised that the Piper Alpha oil platform had been declared a constructive total loss.
At a meeting of the Council of Lloyd's on 3 August 1988 the Chairman (Mr. Murray Lawrence) reported that it was intended to use the Globals Press Conference to counter adverse reporting on the level of resignations and of new Names.
At the same meeting the Council noted a Paper on the subject of the Outhwaite syndicates and endorsed the position outlined therein that Lloyd's should not interfere in commercial disputes, but do everything to ensure their early resolution.
In his statement as Chairman of Lloyd's in Lloyd's Global Report and Accounts at 31 December 1987 Mr. Murray Lawrence said:-
"Over the past twelve months, two events have served to emphasis the vital role played by insurance and by the Lloyd's market in particular.
The devastation created by the storm of October 1987 which cut a swathe across southern England and Western Europe is being described as the world's largest insured loss, estimated to be 3 billion US dollars. More recently, in July this year, the dangers inherent in offshore oil production were brought into stark focus by the explosion which destroyed the North Sea oil production platform, Piper Alpha, involving tragic loss of life. ...
The deterioration in the claims experience over the past twelve months, together with the need to provide for the development of past year claims, especially in relation to long-tail liability business in the United States, have particularly affected the 1985 account results. This emphasises the crucial need to provide for future liabilities by way of full and appropriate reinsurance to close at the end of each year. The same problems are also reflected in the number of syndicates with years of account left open at the end of 1987. At the end of December 1987 there were 76 syndicates with a total of 120 years of account left open. Problems associated with asbestosis and pollution risks, together with other US liability business appear to account for the vast majority of the run-off years. To have so many syndicates left open must be considered unacceptable to underwriters, members and agents alike. Consideration is, therefore, being given by the Council of Lloyd's to ways of dealing with this problem. ...
The difficulties associated with long-tail liability business highlighted by the Chairman of the Non-Marine Association have resulted in both an underwriting loss and an overall loss. This business is now, however, being written at rates that better reflect the present climate and with policy wordings appropriate to the changed circumstances. ...
It is clear that Lloyd's faces an abundance of opportunities in the years ahead...
I am, therefore, optimistic for the future of Lloyd's market place. ..."
An accompanying report from Mr. Michael Williams (Chairman LUNMA) included the following:-
"The 1985 result is, disappointingly, a deterioration on 1984, showing an overall loss of £5.3 million equivalent to 0.4 per cent on an income of some £1,331 million and an underwriting loss of £84.2 million. The result includes the well-publicised Outhwaite syndicates 317/661 for the 1982 account in run-off, accounting for some £85.4 million of losses without which the 1985 results would have shown a profit. ...
Our two main areas of difficulty are in asbestos-related claims and environmental impairment.
The rate of new asbestos-related claims rose steeply from an average 700 per month in 1985 to 2,000 per month in 1987, due largely to intensive publicity from the plaintiff bar and the seeking out of new industries with an "asbestos connection". There are, however, grounds for future optimism as the rate of increase has declined markedly in recent months.
The second major factor in the development of back years is the incidence of environmental pollution claims in the US. Claims for clean-up costs of dump sites are being made for circumstances in which it was never the intention of the insurer or the expectation of the insured that coverage should apply: in many cases insureds deliberately dumped waste knowing it to be harmful to the environment; in other cases dumping occurred at sites licensed for the purpose at the time. Depressing though this may sound, I should point out that underwriters are confident that there are excellent defences to these claims and they will oppose them with the utmost vigour. ..."
A Council Briefing Note dated September 1988 referred to the 'Liability Crisis' and stated that almost 50% of Lloyd's reinsurance to close (£2000 million out of £4000 million) was devoted to outstanding liability claims.
A discussion Paper prepared for consideration by the SSC (Chairman Mr. Merrett) on 14 September 1988 requested the SSC's comments on proposals for regulating personal stop loss business in the Lloyd's market. The discussion Paper pointed out the hazardous nature of personal stop loss business which derived from the reversal of the normal insurance and reinsurance process. In the circumstances of a major catastrophe, rather than spreading risk amongst the many, it could concentrate highly geared liabilities on the few.
A letter dated 5 October 1988 from Mr. C.W. Rome (Chairman of the LUA) to MSSD set out the justification for alterations proposed by the LUA Committee to the MPRs for the marine liability account. Mr. Rome wrote:-
"In no area of their business have Lloyd's underwriters been so substantially and so consistently under-reserved as in the liability accounts. Asbestos-related claims have been with us for some time now, but only recently has there been a serious threat of a substantial volume of such claims falling on marine policies. At present, the P&I Clubs appear to be in the front line, but to what extent they - and their reinsurers in the marine market at Lloyd's - will eventually be involved is unknown. Asbestos was widely used in the construction of ships, but to what extent and over what policy years ship builders and ship repairers policies will be involved no one knows."
At a meeting of the Committee of Lloyd's on 12 October Mr. Merrett raised the subject of aggregation of liability. There were three very large losses outstanding. Hurricane Alicia, though occurring in 1983, had been transferred (via reinsurance to close) to the 1986 year of account. In 1987 there had been the October storms and in 1988 the Piper Alpha disaster. There were thus three major losses on each of the three latest open years. Mr. Merrett said that the burden of the three losses was now beginning to come together with the same syndicates, and thus the same Names, being affected. The amounts involved were immense in relation to the syndicate cash balances and those syndicates had a heavy drain upon their resources for the three separate losses. The position had been reached where some syndicates were significantly through their reinsurance protection for three successive years and yet their Names knew nothing about it. Mr. Merrett continued as follows. The answer was not to be found through the regulatory route, but by managing agents establishing the position of their managed syndicates by requiring the underwriters of those syndicates to produce a worse case scenario. This information could then be passed on to the members' agencies. Agents should be made aware of the questions they needed to ask and reminded that, whilst it was natural to focus upon Piper Alpha, the same questions were relevant to Alicia and the October storms. If there was a heavy un-notified net loss to Names for three years, then the Names should be told. The LUAA was considering a form of questionnaire which would include appropriate questions for members' agents to ask of managing agents (see 8 November below).
At its meeting on 17 October 1988 the SSC (Chairman Mr. Merrett) agreed that a syndicate's gross writing of PSL business should be restricted to 5% of its stamp capacity as from 1.1.90 and that this proposal would be put to the Committee of Lloyd's.
A letter dated 8 November 1988 from the LUAA (Chairman Mr. R.M.H. Gilkes) on the subject of market losses stated: - 
"Your Committee is concerned that two recent catastrophe losses, the October storm and Piper Alpha seem to have been off-loaded onto the reinsurance market and then to be disappearing. As we are dealing with the largest non-marine and marine physical damage losses the insurance world has ever seen, we would expect Lloyd's underwriters to be paying rather more than what appears to be a few fairly modest retentions. Your Committee feels that we need to go beyond the rather comforting letters which managing agents have sent out on Piper Alpha. The attached questionnaire is designed, after considerable market consultation, to find out where these two losses, and Alicia, are finally going to rest so that our members' agents get information which they need for themselves and their Names. Please therefore complete the questionnaire for each of your managed syndicates, adding explanatory notes where necessary, and send it as soon as possible...to your members' agents. ..." 

20. 1989 AND SUBSEQUENT YEARS
It is convenient to deal first with the allegations made by Mr. Donner before turning to a chronological account.

The Donner Inquiry
Mr. John Donner had made allegations in 1989 about so-called "insider reinsurance" at Lloyd's in the early 1980s by certain syndicates with exposure to asbestos-related liabilities. These and related allegations were investigated in 1990 by a panel appointed by the Council of Lloyd's, comprising Mr. Alan Lord (Chief Executive) and three of the nominated members of Council, Sir David Walker, Sir Maurice Hodgson and Mr. Matthew Patient. The allegations were rejected as the nominated members found there was no prima facie evidence of misconduct.
In about early 1995, Mr. Donner again raised these allegations, arguing that he had fresh evidence that the initial investigation had not been properly conducted. Freshfields was asked by Lloyd's Regulatory Board to determine whether there was any new evidence as claimed by Mr. Donner and, if so, whether that would have affected the conclusions of the initial review. Freshfields was also asked to consider the criticisms made by Mr. Donner of the conduct of the Nominated Members' Review. Freshfields reviewed the further documentary evidence provided by Mr. Donner and his lawyers and interviewed all of the nominated members. In a report to the Lloyd's Regulatory Board dated August 1995 (entitled 'Response to the Submission - Concealment by Lloyd's of the Nature and Scale of Liability in respect of Asbestos Claims, prepared by Memery Crystal on behalf of Mr. John Donner'), Freshfields concluded that there was no new evidence to support Mr. Donner's request that an inquiry be initiated nor which affected the validity of the conclusions of the Nominated Members' Review. Freshfields also concluded that the criticisms Mr. Donner had made of the conduct of the Nominated Members' Review were without substance. Freshfields' conclusions were reviewed and supported by Mr. Gordon Pollock Q.C. They were presented to and accepted by the Council of Lloyd's in September 1995.
On 20 September 1995 Mr. Jonathan Evans MP, Parliamentary Under-Secretary of State for Competition and Consumer Affairs, DTI, wrote to Mr. Donner responding to his claim that the DTI was aware that syndicates at Lloyd's were under-reserved, and condoned a policy of gradually increasing the reserves over the years. The letter stated -
"...It is true that the MPRs have increased over the years in a number of classes of business - but this simply reflects the information that has become available over the course of time. Although with hindsight, what has happened might look like "stair-stepping", there has not been, nor will there be any long term policy to adopt a progressive increase in reserves. In addition, it must be remembered that the MPRs are not the sole means by which Names' liabilities for solvency purposes are determined. There is a second method, which makes use of the auditors' view of a syndicate's liabilities, and the MPRs are the backstop to prevent the figures being too low. For most of the classes of business about which Names express concern (particularly the US dollar non-marine All Other class), the liabilities are often determined by the other method, which produces a higher liability figure..."
I now turn to a chronological account of 1989 and subsequent years.

The Task Force (1991-1992)
In November 1990 Mr. David Rowland was asked by Mr. Murray Lawrence, then Chairman of Lloyd's, and Mr. David Coleridge, the incoming Chairman, to lead a Task Force. The Terms of Reference for the work of the Task Force were set by the Council in January 1991. The stated objective was to "identify the framework within which the Society should, ideally, be trading in 5 - 7 years hence...[having] regard particularly for the long-term competitive position of Society."
The report of the Task Force, 'Lloyd's: A Route Forward', was published in January 1992. A summary of the conclusions is contained at the front of the report and the recommendations made by the Task Force are set out in appendix 1 thereto. The report recommended a radical programme for change. As regards the capital structure of Lloyd's, the report recommended the creation of a high-level central stop loss scheme for Names, in order to cap cumulative future losses whilst Names continued to underwrite at Lloyd's on the basis of unlimited liability. As a longer-term objective, the report recommended the introduction of limited liability capital alongside Names' capital, providing an alternative basis for underwriting at Lloyd's and additional sources of capital supply. The Task Force identified the "old years problem" (the risks arising from claims under occurrence policies written over the previous forty years, relating to both years that had been closed and the open run-off years) as one of the gravest threats to the future of the Lloyd's market. In describing these claims the report referred to the problems which had arisen from asbestos-related claims, but also noted the increasingly serious problems presented by pollution claims and other more recent problem areas, such as the pharmaceutical industry. In addition, it pointed out that in the future there could be new sources of claims under these policies, as then unknown. In summarising the situation as seen in 1991, the report noted that although the old years problem first became apparent in the first half of the 1980s, it was towards the end of the 1980s that the market recognised that the problem was worse than had been expected, with the cumulative prior year result for the 1985 to 1988 underwriting years of account (reported as at year ends 1987 to 1990) being a loss of £1.6 billion.
The Task Force appointed McKinsey & Co to work with the Task Force. They provided analytical support and acted as facilitators working closely with the Task Force. The Task Force attempted to scale the potential size of the market's ultimate liability for asbestos and pollution claims. However, the Task Force concluded that to do this at a market level would be extremely complicated, and the uncertainties were too great to come out with reliable estimates based simply on an overview. I refer to paragraphs 7.5 to 7.15 of the report - 'Background to Old Years Problem'. In particular the following passages should be noted:-
"7.9 Continued prior year losses at the level of 1987 and 1988 would be very damaging. Consequently, the Task Force attempted to analyse the underlying causes of these losses, to see whether there could be confidence that the market's reserves were now adequate, and that these prior ...year losses would subside from 1989 onwards. To test this view, we attempted to scale the potential size of the market's ultimate liability for asbestos and pollution claims and to estimate the market's current level of reserves for these liabilities. Our analyses were not productive, as we were unable to arrive at reliable estimates for some of the critical areas of uncertainty. Nevertheless, these attempts at scaling the problem put into sharp focus the enormous uncertainty that still surrounds these liabilities...
Asbestos: Bodily Injury
7.10 The most well-developed of the latent liability problems is that of bodily injury arising from exposure to asbestos, for which new claims continue to be made at a fairly stable rate. There was a period of optimism that the rate of new claims was tailing off; however, this has not yet occurred, and there is continued uncertainty about the eventual size of the insurance industry's liability. Most experts believe that between one half and two thirds of all likely asbestos bodily injury claims have been made, although even these figures are subject to dispute...
Environmental Pollution
7.13 The greatest uncertainties surround the third area of latent liability claims, environmental pollution. ...
7.14 Some attempts have been made to scale the potential liability of the insurance industry for these claims; in testimony to the US Congress Sub-Committee on Policy Research and Insurance, Amy S. Bouska of Tillinghast estimated the range of possible outcomes to lie between $40 billion and $1000 billion. Clearly costs of this magnitude are far beyond the resources of the insurance industry, which is why the industry is lobbying hard for a change in the legislation. These pressures may lead to an alternative solution which would lift this threat from the industry and produce a practical, efficient and more sensible way forward. ...There have been some favourable court decisions, but it is still far too early to assess the eventual outcome of the legal issues surrounding these pollution claims.
7.15 Assessing the range of Lloyd's possible exposure to pollution claims is subject to huge uncertainties. Should court decisions go against the industry as a whole, Lloyd's needs to have only a modest share of the problem for it to face very serious losses. Given these uncertainties, it is not surprising that many syndicates with a large pollution exposure have had to leave a year open being unable to arrive at an equitable RITC."
The report stated at paragraph 7.16 (a):-
"The Society cannot be confident that the need for prior year reserve strengthening has passed. Existing reserves may prove adequate, or even excessive if the outcome of critical uncertainties are favourable; but if they are not, the Society has to allow for the possibility that reserves strengthening may have to continue for some years".
Although it was proposed that consideration should be given to CentreWrite developing a basis for reinsuring individual Names to give those trapped on open years the opportunity to leave Lloyd's, the report concluded that most Names would have to trade through the old years problem. The Task Force rejected any central solution to the old years problem, including proposals for a market wide mutualisation scheme. (It was not until later (see below) that Lloyd's put forward proposals for reinsuring these liabilities into a new reinsurance company to be established for this purpose. Ultimately it took three years of detailed review to quantify the ultimate cost to the market of these and other liabilities which had emerged by the time of the reinsurance. The whole exercise cost in excess of £100 million.)
The report recognised that those responsible for regulatory policy required a degree of independence and distance from the market. The report recommended splitting these two functions, through the creation of a Lloyd's Market Board supported by a full time Chief Executive and a new regulatory Council supported by a full time Head of Regulation.

The Walker Report (June 1992)
At the end of February 1992 the Chairman of Lloyd's (Mr. D. Coleridge) asked Sir David Walker to inquire into allegations that syndicate participations at Lloyd's were arranged to the benefit of working Names and to the disadvantage of external Names and into the operation of the LMX spiral, where it had been suggested that the business was primarily for the benefit of brokers and underwriters at the expense of members of syndicates. Sir David formed a small Committee to assist him in this task, and presented the 'Report of an Inquiry into Lloyd's Syndicate Participations and the LMX Spiral' on 26 June 1992. The Report considered:- the development of the LMX spiral; the LMX spiral business:critical appraisal; the LMX spiral and regulatory policy; syndicate participations:the experience of 1983-1990; syndicate participations: critical appraisal; the role and performance of members' agents; and the role and performance of managing agents. Appendix A contained a list of recommendations.

The Morse Report (June 1992)
Following the publication and consideration of the Task Force report in early 1992, a Working Party was established under the Chairmanship of Sir Jeremy Morse to investigate the proposals for the future governance of Lloyd's. The Morse Report, entitled 'A New Structure of Governance for Lloyd's' was published in June 1992. This report recommended that the Council of Lloyd's should remain and that a Regulatory Board and a Market Board should be created, both reporting to the Council, and effectively replacing the Committee of Lloyd's. This recommendation was carried out as from the beginning of 1993.

Open Years Panel Report (March 1993)
In the 12 months following publication of the Task Force Report, the problems associated with the old and open years continued to develop. In particular, there was a large increase in the number of open years and the Names trapped thereon, as identified in the Open Years Panel Report published in March 1993. Many of these open years related to LMX/catastrophe and short tail syndicates. In addition, a number of the largest syndicates also left years of account open as a consequence of their exposure to long-tail liabilities, including asbestos and pollution related claims. Mr. Christopher Stockwell was Chairman of the Open Years Panel. In a letter to the Chairman of the Market Board dated 15 March Mr. Stockwell pointed out that some 15,000 to 17,000 Names were in law suits against Lloyd's agents and underwriters to try to recover damages for what they considered to be the failure of regulation and lack of professional standards. The letter urged the Market Board to create a negotiated settlement for all those cases without waiting for the negative publicity, cost and diversion of management time which a court litigated settlement would involve.
The Panel found six major underlying causes for open years:- latent liabilities, LMX spiral, personal stop loss and estate protection plan, catastrophe, professional indemnity and insufficient stamp capacity. Latent liabilities were the most important underlying cause. They represented 42% of open years by number, 60% of open years by stamp capacity. 26,000 Names had exposure to open years with asbestos and pollution liabilities. The uncertainty surrounding such liabilities was extremely high and the expected time to close could well be 10 to 25 years. The Panel believed that old year liabilities in closed syndicates could be ticking time bombs which might cause more open years.
Among the options presented to the Market Board to deal with the "hard" open years, the Panel preferred that option which centralised all long-tail liabilities into one limited liability vehicle.
As to latent liabilities, the Panel said that the most well-developed, and therefore least uncertain,of the latent liability problems was that of asbestos bodily injury. The least well-developed, and therefore the most uncertain, was that of environmental pollution.
The Panel (with analytical support provided by Mercer Management Consulting) spent a lot of time trying to put a figure on what the cost would be to close all the open years. It did not succeed because of the very great uncertainties attaching to US long-tail liabilities, especially pollution.
As to reserving for long-tail liabilities, the Panel said that historic reserves had frequently proved to be inadequate as claims came in 'waves'.

The Business Plan (April 1993)
Mr. David Rowland as Chairman of Lloyd's, working closely with the new Chief Executive, Mr. Peter Middleton, produced a document entitled 'Planning for Profit: A Business Plan for Lloyd's of London'. The Business Plan was published in April 1993. It built on many of the recommendations set out in the Task Force report. Two of the principal proposals of the Business Plan were:
(1) The admission of incorporated capital to Lloyd's; and 
(2) Managing the old years problem through the reinsurance of the market's 1985 and prior years liabilities into a properly capitalised reinsurance company.

The Guide to Corporate Membership (September 1993)
In September 1993 a document entitled 'A Guide to Corporate Membership' was issued. This is often referred to as the Guide to Corporate Capital. Corporate members were first admitted to Lloyd's in the 1994 writing year of account.
The proposals of the Business Plan in relation to the management of the old years became known as the "NewCo Project". An essential feature of the proposals was the proper capitalisation of NewCo, on the basis of appropriate and equitable reserving standards. The reserving project commenced in the autumn of 1993, with the appointment of Heidi Hutter, a US actuary with extensive experience of non-life reinsurance, to lead the project. The project expanded in May 1995, as part of the R&R proposals, to cover all 1992 and prior years liabilities. It was not completed until May 1996, almost three years after it commenced. It was probably the largest reserving project ever undertaken in the insurance industry. It involved many of the leading actuarial and accounting firms in the insurance industry, including Tillinghast, Ernst & Young, Coopers & Lybrand Actuarial Insurance Services, Neville Russell and Mercer Management Consulting.

The Kerr Report (October 1993)
In July 1993 Lloyd's appointed an independent Legal Advisory Panel (Sir Michael Kerr (Chairman), Mr. Stewart Boyd Q.C. and Mr. Stephen Tomlinson Q.C.) to look into the potential claims. The remit of the Panel was to investigate the merits (and possible quantum) of such claims and to provide an objective and impartial report. This was intended to promote a possible settlement of the pending and impending litigation between Names and their agents, arising in particular out of the LMX spiral, long-tail liabilities and personal stop loss business. The Kerr report was submitted to Lloyd's in October 1993. Paragraphs 14.8 and 14.9 under the heading "Long-tail Cases" dealt with claims against syndicates which had not written any unlimited run-off contracts for other Lloyd's syndicates:
"14.8 We have carefully considered all the events in 1980 to 1982 on which the Names rely in support of their contentions that 1979 should have been kept open, culminating in the Neville Russell letter in February and the Murray Lawrence letter in March of 1982. But we are not persuaded that these arguments fairly or adequately reflect the overall market perception (or lack of perception) of the likely future dimension of the asbestosis claims experienced at the time... The choice appears to us therefore to lie between the conclusion that the entire market with long-tail US liabilities was negligent in closing 1979 or that the allegation of negligence in this regard is based on hindsight. In our view the latter conclusion is more likely to be correct.
14.9 Looking at the matter broadly, we have therefore concluded that Names...are unlikely to establish that the 1979 year of account ought not to have been closed into 1980 in the calendar year 1982, and we have reached the same conclusion in relation to the closure in 1983 and 1984 of the years 1980 and 1981. From the calendar year 1985 onwards the closure of earlier years for syndicates with accrued long-tail liabilities arising out of US casualty business gradually became more questionable, although the circumstances varied as between different syndicates, and the case against closure was not necessarily progressively uniform. In this connection it must be remembered that the full impact of asbestosis and pollution liabilities for the market was only felt in the late 1980s..."
I refer to the Merrett judgment. The Kerr Report was, of course, not before the court during the Merrett trial. The Panel's assessments in Part II of their report accord with the judgment in Merrett.
It is to be noted that the Kerr report did not suggest that the Council or Committee had been at fault, let alone guilty of dishonesty, as alleged in these proceedings.
The first attempt at a market settlement failed in about early 1994.

Value at Lloyd's (May 1994)
In February 1994 Mr. David Rowland announced the formation of a Working Group led by Lloyd's Deputy Chairman, Mr. Robert Hiscox, to assist the Council in considering how best to develop a system for enabling members to create and realise the value of belonging to a Lloyd's syndicate. The Value Group's initial recommendations were considered and endorsed by the Council and were set out in a document entitled 'Value at Lloyd's', published on 3 May 1994.

The House of Commons Treasury and Civil Service Select Committee - Hearings
The hearings before the House of Commons Select Committee in the early part of 1995 concerned regulation at Lloyd's, in the wider context of financial services regulation generally, given that Lloyd's had been specifically excluded from the Financial Services Act 1986.
When giving evidence on 13 February 1995 Mr. Rowland said that he thought that many people came into membership, either stretching themselves being encouraged by their banks and other advisers and by agents, who should never have been members of the market. Many people were encouraged into membership who in hindsight should never have become members.

The Call for an Independent Inquiry
On 16 May 1995 the Prime Minister (Mr. John Major) wrote to a Member of Parliament whose constituent had urged support for an Early Day Motion seeking an inquiry into Lloyd's. The Prime Minister wrote:-
"I appreciate your constituent's concern about the losses that have been sustained by Lloyd's in recent years, and the effect that this has had on the personal finances of many of its members. I do not however consider that there is any need to initiate an independent inquiry into these losses, not least because it would only duplicate actions that are already being taken.
In particular Lloyd's itself now always initiates an independent loss review of the circumstances of any major underwriting loss suffered by a syndicate. These reviews are automatic when a loss exceeds 100% of a syndicate's capacity, except when litigation or arbitration is pending or when agents have already reported to the satisfaction of Names. Several inquiries of this type have already taken place, and they can provide the basis for further actions by Names. Such actions could pave the way for Names to recover some of their losses - something that would not readily occur as a result of an independent inquiry established by the Government.
Moreover the Treasury and Civil Service Select Committee have recently been inquiring into the regulatory regime at Lloyd's, and I expect that their report will be published soon. It would therefore be inappropriate to try to go over the same ground at present.
In addition, there are already a number of cases before the courts, and the launching of an independent inquiry would add little to the examination of the issues. An inquiry into events at Lloyd's in the early 1980s would have to be rather formal because it would involve primarily parties outside Government. This would add to the length of the proceedings, and would represent a significant extra burden for all the parties at a time when litigation was in progress. At worst an inquiry would be in danger of confusing and dragging out the resolution of the issues.
In view of all this I do not consider it would be appropriate to establish an independent public inquiry of the sort suggested."

The Select Committee Report and the Government's Response
The Select Committee produced a report entitled 'Financial Services Regulation: Self-Regulation at Lloyd's of London' in May 1995. The report was critical of Lloyd's. Paragraph 24 stated that there was considerable evidence to suggest that there was knowledge within the market that long-tail losses existed, and that Names joining the market from the mid 1980s onwards were not given full information on the nature of the risks they were underwriting. The Report identified what the Select Committee saw as past regulatory failure, while acknowledging that "no form of regulatory regime can give a 100% guarantee of efficacy" (paragraph 69 of the report). Notwithstanding these criticisms, the Select Committee unanimously rejected the so-called conspiracy theory (submitted by the Lloyd's Names Association Working Party) of a central dishonest strategy of recruitment. Paragraph 31 of the report stated as follows:
"It is therefore apparent that Lloyd's failed to regulate the capacity of the market in aggregate and also failed to limit membership to those for whom it was beneficial and appropriate. The exact reasons for this failure are difficult to trace. It would be easy to accept the conspiracy theorists' views that a decision was taken to recruit Names to share in the expected losses. This explanation is, however, unlikely given the structure of Lloyd's, where different firms price risks and to some extent share information. It seems more likely that the benefits of expanding membership were perceived by professionals in Lloyd's and a herd instinct typical of markets generally meant that the expansionist trend became well developed. Furthermore, the existence of agents with a financial interest in increasing membership, can only have reinforced this trend. This was compounded by willingness on the part of members and potential members of Lloyd's to view only the benefits of underwriting to an exclusion of the potential risks, while increasing property values had made many regard themselves, for the first time, as rich enough to contemplate joining Lloyd's".
The Government's response to the Treasury and Civil Service Committee's Fifth Report was set out in a memorandum dated 18 July 1995.
As to adequacy of information disclosure, the Government referred to the Murray Lawrence letter of March 1982 and continued: 
"The Government is aware that Names claim that agents did not pass this warning onto Names, and claim that Lloyd's should have written to all Names, rather than just agents. Such direct communication to all Names has now become much more normal than it was in the early 1980s... Such a change in approach is typical of the developments that have taken place in the last 10 to 15 years. The Committee's own members were aware that in the early 1980s, Lloyd's was generally a secretive organisation, and the Report noted that Names did not, at that time, take issue with the Society on this aspect of its behaviour. The Neill Committee Report however made a number of recommendations aimed at improving the information available to members and prospective members, all of which were implemented in the late 1980s. Moreover, the Walker Enquiry made further recommendations in 1992 for improving the information available to members, particularly on syndicate performance and capacity. Lloyd's now publishes...a considerable amount of syndicate data...this goes a long way to implementing the Walker Committee's recommendation, though the Government regrets that Lloyd's has so far not fulfilled the whole recommendation on the breakdown of syndicate performance by specific categories of members. Nevertheless the Government is not persuaded that a change in statutory framework of regulation is necessary to remedy any remaining failings in respect of the information available to members."
The Government said that it did not intend to institute any special inquiry into the affairs of Lloyd's. Its Response concluded that the DTI would continue to exercise towards Lloyd's the responsibilities laid on the Secretary of State by the Insurance Companies Act 1982, particularly as regards the monitoring of solvency and the consideration of the authorisation of the proposed Equitas Reinsurance Company. In the light of the outcome of that work, the Government would institute a review of the statutory framework of Lloyd's regulatory arrangements in the light of developments.

The Reconstruction and Renewal Plan
Following the failure of the first settlement offer in 1994, there was widespread litigation facing the market. The seriousness of the situation facing Lloyd's and the solutions proposed were set out in a document issued in May 1995 entitled 'Lloyd's: 'Reconstruction and Renewal'. In his introduction to the document Sir David Rowland said:
"Unless we take radical action now to produce a solution which is acceptable to our policy holders, our regulators, and to you, our membership, I do not believe that the Society will be able to survive in anything like its present form." 
The key elements of the R&R Plan were providing all Names with the opportunity of "finality" through an acceleration and expansion of the Equitas project (as the NewCo project was, by then, known) and a settlement which would include an estimated £2 billion of debt credits to reduce the cost of finality. The proposals as set out in the Settlement Offer document in July 1996 were accepted by almost 95% of the Names.
Between May 1995 and the making of the Offer in July 1996 various committees were established to review the proposals from the Names' standpoint. These included the Names Committee, under the chairmanship of Sir Adam Ridley (Deputy Chairman of the Association of Lloyd's Members), which considered how to achieve a fair allocation of the debt credits. The Validation Steering Group was also established under the chairmanship of Sir David Berriman, representing the Association of Lloyd's Members, and including representatives of the Litigating Names Committee and the Lloyd's Names Associations' Working Party. Its terms of reference included an evaluation of the comparative advantages and disadvantages of alternatives to the R&R Plan and an examination of the powers of Lloyd's to implement R&R and of the Council's duties to members and policyholders in so doing. The Group was independently advised by Slaughter and May.
Extensive work was carried out in reserving for the reinsurance by Equitas, which involved a large number of the leading external actuaries and accountants. The results of this work were considered by, amongst others, the DTI advised by the Government Actuary's Department. The Council of Lloyd's was advised by Lazard Brothers & Co Ltd and by Tillinghast-Towers Perrin. The board of Equitas was separately advised by N.M. Rothschild. Approval of the New York Insurance Department was also required, given the assets held in trust in the US in relation to the market's US dollar denominated business. 

21. DEVELOPMENTS IN RELATION TO CAPITAL STRUCTURE
Corporate members commenced underwriting at Lloyd's in the 1994 year of account. They provided approximately £1.6 billion of capacity, which represented 14% of the total market capacity for that year. By 1997 corporate members provided approximately £4.5 billion of capacity representing 43% of the total market capacity. During the same period the number of individual Names underwriting as sole traders dropped from 17,481 to 9,916.
Since the introduction of corporate membership in 1994 the arrangements have developed so that corporate members can now participate on syndicates in several different ways:
(1) Mixed syndicates: where the members of the syndicate are both corporate and individual members respectively. Usually the syndicate will have traded at Lloyd's for a number of years;
(2) Parallel Syndicates: where the corporate member participates as the only member in a specially formed syndicate operating in parallel with the ongoing mixed syndicate; and 
(3) Stand-alone corporate syndicates: where a syndicate has a single corporate member and does not write in parallel with another syndicate.
Corporate members can take the form of either a spread vehicle or a dedicated vehicle. A spread vehicle participates on many syndicates in a similar way to an individual member. A dedicated vehicle usually participates exclusively on one or more syndicates of a single managing agent or managing agent group. More recently Lloyd's has admitted Scottish limited partnerships as corporate members. This form of corporate membership offers certain tax advantages to individuals wishing to underwrite on a limited liability basis.
Since 1994, different mechanisms have been developed which allow an individual Name to convert to underwriting on a limited basis. The main methods which have been developed are:-
(1) Conversion arrangements: there are three kinds of such arrangements, each of which enables a Name's funds at Lloyd's to be used to support that Name's underwriting through the corporate member. The principal mechanism is by way of the "interavailability" arrangements which enable the Name's funds at Lloyd's to cover both the Name's existing underwriting liabilities and the underwriting liabilities of the corporate member to which the Name has assigned his/her future syndicate participations; and 
(2) Share swap arrangements: under these arrangements a Name assigns part of all of his/her future syndicate participations to a corporate member in consideration for the issue of shares in the corporate member or connected company and/or for cash.
The year 2000 is the seventh year in which individuals have been able to underwrite at Lloyd's through corporate members. 
There are now about 3,289 individual Names underwriting at Lloyd's as sole traders with unlimited liability.

22. ANALYSIS OF AND CONCLUSIONS AS TO THE THRESHOLD FRAUD POINT

The Threshold Fraud Point. The Names' Case. Lloyd's Case. The Relevant Legal Principles.
This trial is concerned with the Threshold Fraud Point being the issue whether Lloyd's made misrepresentations which it knew to be untrue and/or as to which it was reckless whether they were true or false, and whether such misrepresentations were communicated to the Names and if so, when?
The Names' case is set out in chapter 7.
Lloyd's case is set out in chapter 8.
The relevant legal principles are set out in chapter 9.

Representations Alleged to be Derived from the Brochures. Representations Alleged to be Derived from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87.
The Names say that the Lloyd's Brochures from time to time contained statements which constituted representations to the effect that a Name joining Lloyd's:
(i) Could have confidence in Lloyd's as an institution to safeguard his/her interests;
(ii) Could trust those who were chosen by Lloyd's to regulate the Lloyd's market and manage its affairs;
(iii) Because of the way in which Lloyd's regulated and monitored underwriting accounts year by year:
(a) could rely on syndicate accounts;
(b) could in underwriting and/or deciding whether to remain a member of Lloyd's have confidence in the audited syndicate results, for results of past years;
(c) could be sure that Lloyd's as part of its regulatory duties would ensure that when prospective liabilities were reinsured by one syndicate year into another, such liabilities were being fairly assessed and quantified as between the two syndicate years.
The statements in the Brochures relied upon by the Names as supporting these alleged (derived) representations are set out in Appendix 3 to Sir William Jaffray's Re-Amended Points of Defence and Counter-claim.
The alleged representations derived from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 were as follows:-
(a) that the Lloyd's market was in a sound financial condition;
(b) that Names could safely join Lloyd's and/or continue their membership of Lloyd's and/or increase their Premium Income Limit with confidence that known and projected claims had been prudently and adequately reserved to ultimate.
The Names rely on specific statements in the said Appendix 3 as supporting these representations.

The Brochures
I find that the Brochures did not contain the alleged representations, inter alia for the following reasons.
(i) The whole of each Brochure must be considered.
(ii) The starting point is the actual words used in the Brochures.
(iii) A useful question is as follows: What would a reasonable applicant for membership of Lloyd's/Name understand when reading the Brochure as a whole?
(iv) The alleged representations are not contained in any of the express words used in the Brochures.
(v) The alleged representations (a) are not necessary to give business efficacy; (b) do not represent the obvious, but unexpressed, intention of the parties; and (c) are inconsistent with the express words used in the Brochures.
(vi) In Society of Lloyd's v Clementson [1994] CLC 71 (Saville J), [1995] CLC 117 (CA), the Names argued that their contract with Lloyd's was subject to implied terms, such as:
"(1) That Lloyd's would regulate and direct the business of insurance at Lloyd's with care and diligence and/or lawfully.
(2) That Lloyd's would manage and superintend the affairs of the Society with care and diligence.
(3) That Lloyd's would advance and protect the interests of members of Lloyd's in connection with the business carried on by them with care and diligence and/or lawfully."
The alleged (derived) representations are re-workings of the implied terms rejected in Clementson. In Clementson, Saville J. said (76):
"... it seems to me that whatever test is applied, there is no need for the implication of any of the suggested terms. The undertaking is wholly efficacious as it is expressed and wholly carries through its object, namely contractually to bind the individual to the rules etc of the Society. Since this is the bargain that the parties were making, they could not on any sensible view have regarded the suggested implied terms as a necessary part of the individual's promise to comply with the rules. The contract is not incomplete; its nature does not require that further unexpressed rights and obligations should be implied into it. ...
Since in my judgment the defendants fail on this first essential requirement for implied terms it is not necessary to deal with the other arguments addressed to me on this topic. Suffice to say that I saw great force in many of the other submissions made by [Counsel] on behalf of the Society, for example as to the lack of precision of the alleged terms, and as to the tacit but unfounded assumption of the defendants that the Society was not only concerned with regulating the market but was also responsible in some way for the actual underwriting transacted by the agents of the members. In this latter connection it is noteworthy that Mr. Mason .... signed a "verification form" as a candidate for membership in which he expressly acknowledged that he understood that this was not the case and that the agents bore sole responsibility for the underwriting."
In the Court of Appeal, Sir Thomas Bingham MR said (at 122):
"... I would be content to accept the judge's reasoning as my own. The clear and simple purpose of this agreement, aptly called an undertaking, was to ensure that on his becoming a name Mr. Mason became subject to the regulatory regime of Lloyd's. The clauses governing choice of law and venue were ancillary to that object. No other obligation was assumed by Lloyd's because no other obligation was needed to achieve that object. No contractual obligation was needed to restrain Lloyd's from acting unlawfully, ultra vires or in bad faith because it had no power to do so and could be restrained from doing so without the need to rely on any contract. It was in no way necessary to the efficacy of the contract that Lloyd's should regulate and direct the business in its market with reasonable care … Mr. Mason was subjecting himself to the regulatory jurisdiction of a body of which he was becoming a member and consisting of his fellow members. For the management of his underwriting business he would look to his own agents and not to Lloyd's. In contractual terms there was no more to it than that..."
Steyn LJ said (at 132–133):
"... I take the view that there are four reasons which cumulatively make it impossible to imply any of the suggested implied terms …Thirdly, the Lloyd's system operates on the fundamental premise that a name entrusts his affairs, and in the process his fortune, to his managing agents. The name has remedies both in contract and in tort against the managing agent: Henderson v Merrett Syndicates Ltd. . Names assume substantial risks but at all material times names have done so in return for the advantage of their money, by way of underwriting and investment, "working twice", added to which there have been the prospects of substantial taxation advantages. Historically becoming a name at Lloyd's proved very profitable business. But the negative side of the bargain has always been that the name relies on, and assumes the risk of, the honesty and skill of his managing agent. Manifestly in the Lloyd's system there is no assumption of responsibility by Lloyd's to supervise the investment or underwriting decisions of managing agents. That does not mean that Lloyd's has a licence to act in bad faith, for improper purposes or otherwise in an unlawful manner. But that merely means that such action would be ultra vires …
… I would reject the argument that any of the terms put forward in this case are capable of being implied. I am driven to this conclusion by three distinctive features of the relationship between a name and Lloyd's: namely (1) that the sole purpose of the general undertaking is to commit a name to the regulatory system of Lloyd's; (2) that it is prima facie inappropriate to imply such terms in a relationship between names inter se; and (3) that the Lloyd's system operates on the basis that names look for protection of their interests solely to their managing agents and not to Lloyd's. While the Council and Committee of Lloyd's are empowered to regulate the market Lloyd's does not assume any responsibility to protect names from the breaches of duty of their agents. The suggested implied terms are not needed. On the contrary, the Lloyd's system, as underpinned by the Lloyd's Act, would be rendered unworkable if such terms were to be implied."
(vii) As to the first alleged representation ("Could have confidence in Lloyd's as an institution to safeguard his/her interests") it is (a) unclear in its terminology; (b) does not accord with the administrative structure and governance of the Lloyd's market and the regulatory background for the auditing and accounting regime at Lloyd's; and (c) is inconsistent for example with the following express statements in the Brochures.
The 1980 Brochure for Applicants stated:
"2.7 The functions of the Underwriting Agent are of vital concern to Members because the Agent is in complete control of the underwriting affairs of his Names, and has to deal with the complications of taxation, reserves, investments and the running of the Agency in addition to maintaining accounting procedures and statistical data on the current trends of underwriting. The Underwriting Agent is responsible for advising the Member as to which syndicates to join and conducting his Lloyd's business on his behalf, which involves, among other things, keeping him fully informed of the progress of his underwriting activities, as well as keeping regularly in touch with the syndicates to which the Member belongs. The Agent will also be responsible for the investment of premium income received from the Member's account... The Agent may however make arrangements for some of his duties to be carried out by another agent. The Underwriting Agent has a duty to his Names on the one hand to conduct the underwriting affairs in as efficient a manner as possible, and the Committee of Lloyd's on the other to see that its requirements are complied with on behalf of the Names for whom he acts."
See further for example 'Membership - The Issues' December 1986 under the heading 'Key Membership Issues'.
See also Gatehouse J in Ashmore v Lloyd's (No.2) [1992] 2 Lloyd's Rep. 620.
(viii) Similarly the second alleged representation ("Could trust those who were chosen by Lloyd's to regulate the Lloyd's market and manage its affairs") and the third alleged representation ("Because of the way in which Lloyd's regulated and monitored underwriting accounts year by year: (a) could rely on syndicate accounts; (b) could in underwriting and/or deciding whether to remain a member of Lloyd's have confidence in the audited syndicate results, for results of past years; (c) could be sure that Lloyd's as part of its regulatory duties would ensure that when prospective liabilities were reinsured by one syndicate year into another, such liabilities were being fairly assessed and quantified as between the two syndicate years") are (a) unclear in their terminology; (b) do not accord with the administrative structure and governance of the Lloyd's market and the regulatory background for the auditing and accounting regime at Lloyd's; and (c) are inconsistent for example with the following express statements in the Brochures.
The Brochure for Applicants in 1979, in 1980 and in 1981 described the RITC process in the following way:
"11. CLOSING REINSURANCE
When the estimated outstanding liability on a year of account is determined at the end of the third year pursuant to the provisions of the Lloyd's audit, a syndicate will usually close the account by reinsuring such liability into a later year of the syndicate. This is accomplished by members of the old syndicate paying a reinsurance premium to the new syndicate. The new syndicate then assumes any future liability which may be incurred as a result of claims on the policies written by the old syndicate. Being an estimate of future liability, the reinsurance premium may or may not eventually be proven accurate. In certain cases it has been inadequate and the new syndicate has suffered losses in excess of the reinsurance premium received; in such cases Members in the new syndicate would suffer a loss on the reinsurance to close."
The December 1983 version of the Brochure for Applicants described the RITC process in the following way:
11. CLOSING REINSURANCE
Whilst paid claims will, of course, be known and information available on known (but unpaid) claims, it will also be necessary to estimate the value of any unknown claims which may arise in the future and be attributable to that year of account. The computation of the overall figure of outstanding claims is a major exercise for the managing agent and his underwriter and will be a crucial element in determining whether that year of account shows a profit or a loss. Once this liability has been estimated it must be reinsured by a policy of reinsurance in order that the account can be closed. The reinsurance will normally be accepted by the syndicate's next year of account, but provision can be made for the reinsurance to be placed with other syndicates or for the account to remain open for a further year or years. The latter course will be adopted where the agent and his underwriter feel that it is not practicable, at that time, to predict with any reasonable degree of certainty the future claims which will arise on that year of account... The quantification of the reinsurance to close is an estimate of future liability and the reinsurance premium may or may not eventually be proven accurate. In certain cases it has been found to have been inadequate and Members participating on the account which has accepted the reinsurance have suffered a loss on the reinsurance to close."
The December 1986 publication 'Membership - The Issues' contained the following explanation of the RITC process and closure of syndicate accounts:
In the "Key Membership Issues" summary section at the beginning of the Brochure:
"Members inherit both assets and liabilities in respect of business underwritten before they joined a syndicate. There can be no certainty that the assets will be sufficient to cover the liabilities." 
Under "Major Financial Aspects":
"At the end of the third year, the account is normally closed by a payment of a reinsurance premium, normally to the following underwriting year of account of the same syndicate ... The acceptance by a syndicate of the premium for the reinsurance to close an earlier year of account means that a Name becomes liable for risks written before he became a member of the syndicate ... Occasionally, an account is left open at the end of the third year and is not closed by reinsurance. This may happen for a number of reasons, but will primarily result from major uncertainty as to future levels of liability. Full liability remains with the members participating in such accounts even if they resign from Lloyd's or die, until the accounts are closed by reinsurance: this may take years." 
Under "Accounting and Information to Names":
"The reinsurance to close represents a premium payable under contract by Names in one year of account to a succeeding, usually the next, year of account ... The contract transfers by reinsurance all outstanding risks and benefits relating to the closing year and all previous years of account to the succeeding year, in consideration for which an equitable premium is paid ... The calculation of the premium for reinsurance to close involves the exercise of significant professional judgment and draws on the full experience of the active underwriter in assessing the outstanding known claims, claims incurred but not reported to the syndicate and any further claims which are likely to arise ... The syndicate auditor is required to pay particular attention to the calculation of the reinsurance to close in drawing up his report." 

The Globals
I find that the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 did not contain the alleged representations, inter alia for the following reasons:
(i) The whole of each of the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 must be considered.
(ii) The starting point is the actual words used.
(iii) A useful question is as follows: What would a reasonable applicant for membership of Lloyd's/Name understand when reading the document as a whole?
(iv) The alleged representations are not contained in any of the express words used.
(v) The alleged representations (a) are not necessary to give business efficacy; (b) do not represent the obvious, but unexpressed, intention of the parties; and (c) are inconsistent with the express words used.
(vi) The alleged representations are (a) unclear in their terminology; (b) do not accord with the administrative structure and governance of the Lloyd's market and the regulatory background for the auditing and accounting regime at Lloyd's; and (c) are inconsistent with express statements in the documents. By way of example I refer to the passages quoted in chapter 19 from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87.
(vii) As to the second alleged representation, Lloyd's accepts that a representation was made that such figures represented an accurate aggregate of the audited trading results of all syndicates in the market. The Notes to the Accounts in the Globals made it quite clear that the figures were no more than an aggregation of such syndicate results.

Other Ingredients of the Tort of Deceit Not Made Out
In case I am wrong as to the alleged representations or any of them, for the reasons set out below I find that other ingredients of the tort of deceit were not made out. In particular I find, for the reasons set out below, that the Names have not proved fraud in the sense set out in chapter 9 above, under the heading 'The Tort of Deceit'.

The Names' Case is Confined to Asbestos-Related Losses
The Names say that representations made by Lloyd's were untrue for two principal reasons: (i) that the market was under-reserved for asbestos-related losses; and/or (ii) that there were systemic problems affecting the market's ability to quantify accurately future losses for asbestosis, such that the ultimate cost of the asbestos losses which would affect the Lloyd's market was not capable of quantification.
It is important to remember that the losses suffered by the market in and after the Relevant Period were caused by a number of factors in addition to asbestos-related claims including without limitation:-
(i) Pollution and other long-tail claims;
(ii) The North European storms in 1987; Piper Alpha and Hurricane Gilbert in 1988; Hurricane Hugo, the San Francisco Earthquake, Exxon Valdez, and Phillips Petroleum in 1989; and the North European storms in 1990; and
(iii) The LMX Spiral described in chapter 10.
The impact of these factors varied as between individual syndicates. Long-tail syndicates facing asbestos-related claims also faced environmental pollution claims. It is unrealistic in any year in the Relevant Period to ignore the problems created by environmental pollution and other latent liability claims. The position of course varied from year to year. The report of the Rowland Task Force published in January 1992 said that the greatest uncertainties surrounded environmental pollution claims. The Open Years Panel Report of March 1993 stated that the least well-developed, and therefore the most uncertain, of latent liability problems was environmental pollution.
As the Names' case is confined to asbestos-related losses, it is necessary to single out the impact of these losses, bearing in mind at all times the wider picture referred to above.

The Names' Case Must be Judged Against the Relevant Structure and Background
The Names' case must be judged against the relevant structure and background. For this reason I have set out the Administrative Structure and Governance of the Lloyd's Market in chapter 10, the Regulatory Background for the Auditing and Accounting Regime at Lloyd's in chapter 11, and the Rules and Procedures Governing the Admission to Underwriting Membership of Lloyd's and Related Matters in chapter 12.
As to RITC, I have set out in chapter 13 the Role of the Managing Agents/Underwriter and in chapter 14 the Role of the Auditors.
I refer to the detailed analysis in chapters 10 to 14.
I set out below some general points under the headings (a) to (i) below, without prejudice to the general account in chapters 10 to 14 which is central to a proper understanding of how the Lloyd's market worked.
There is considerable force in Lloyd's submission that if the Names' allegations are factually correct, then it would follow that each managing agent of a syndicate exposed to asbestos-related claims, each firm of panel auditors concerned with such a syndicate, each members' agent advising Names on syndicate selection, and the DTI as the overall regulator of the insurance industry, should have drawn similar conclusions to those which the Names allege Lloyd's should have drawn.

(a) Market Associations
A separate association exists for each underwriting market. They are independent of the Society and Corporation of Lloyd's. The statements made by the Chairman of LUNMA in the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87 were independent of the Society and Corporation of Lloyd's.

(b) The Role of The Department of Trade and Industry
The allegation that Lloyd's knew or was reckless as to the fact that the Lloyd's market's exposure to asbestos-related claims required reserves and RITC to be set at figures far in excess of those which were set out in the Lloyd's Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87, must be judged having regard, among other matters, to the role of the DTI as explained in chapter 10. I have set out in chapter 19 some examples of the attitude and position taken by the DTI as to reserving for long-tail claims during the Relevant Period.

(c) Minimum Percentage Reserves
Lloyd's made it clear to the DTI, and in the Audit Instructions, that the MPRs were absolute minima. Thus by way of example the Solvency Letter for the 1984 year end expressly stated, at note (i)(a) to clause 6, that: "The scales of minimum percentage reserves represent the absolute minimum requirement for any syndicate."

(d) Developments in the Lloyd's Regulatory Environment for Auditing and Accounting
I refer to the developments in the Lloyd's Regulatory Environment for Auditing and Accounting as described in chapter 11C under the headings the Fisher Report and Lloyd's Act 1982, Changes in Lloyd's Departmental Structure, 1986 Audit Brief, the Neill Report, and Involvement of Professionals in the Task Groups, Working Parties and the AASC and MSSC. These developments were responsible developments with a view to improving the auditing and accounting regime at Lloyd's.

(e) Managing Agents
Significant protections should have been afforded to Names by the role and duties of managing agents. The role and duties of a managing agent are described in chapter 10. The role of the managing agents/underwriter in relation to RITC is described in chapter 13.
The Names' case that Lloyd's knew or was reckless as to the fact that the Lloyd's market's exposure to asbestos-related claims required reserves and RITC to be set at figures far in excess of those which were set out in the Aggregate Results/Globals as at 31.12. 81 to 87, pre-supposes that all or a significant number of managing agents concerned with syndicates subject to asbestos-related risks were negligent during the Relevant Period. It is necessary to distinguish between syndicates that wrote run-off contracts, and those which were simply concerned with their own book of business. As to syndicates that wrote run-off contracts I refer to the Outhwaite settlement and the Merrett judgment. As to syndicates which were simply concerned with their own book of business, no two syndicates had the same book or the same protections. By way of example some syndicates had unlimited run-off cover. An independent assessment is found in the Kerr Report (October 1993).
Paragraphs 14.8 and 14.9 under the heading "Long-Tail Cases" dealt with claims against syndicates which had not written any unlimited run-off contracts for other Lloyd's syndicates:
"14.8 We have carefully considered all the events in 1980 to 1982 on which the Names rely in support of their contentions that 1979 should have been kept open, culminating in the Neville Russell letter in February and the Murray Lawrence letter in March of 1982. But we are not persuaded that these arguments fairly or adequately reflect the overall market perception (or lack of perception) of the likely future dimension of the asbestosis claims experienced at the time... The choice appears to us therefore to lie between the conclusion that the entire market with long-tail US liabilities was negligent in closing 1979 or that the allegation of negligence in this regard is based on hindsight. In our view the latter conclusion is more likely to be correct.
14.9 Looking at the matter broadly, we have therefore concluded that Names...are unlikely to establish that the 1979 year of account ought not to have been closed into 1980 in the calendar year 1982, and we have reached the same conclusion in relation to the closure in 1983 and 1984 of the years 1980 and 1981. From the calendar year 1985 onwards the closure of earlier years for syndicates with accrued long-tail liabilities arising out of US casualty business gradually became more questionable, although the circumstances varied as between different syndicates, and the case against closure was not necessarily progressively uniform. In this connection it must be remembered that the full impact of asbestosis and pollution liabilities for the market was only felt in the late 1980s..."
Further I refer to the detailed assessments in the Kerr Report of the 14 sets of long-tail cases.

(f) Panel or Registered Auditors
Significant protections should have been afforded to Names by the role and duties of panel or registered auditors. There were two separate (although related) aspects of the annual audit work carried out by the panel or registered auditors:
(i) the audit of syndicate accounts prepared by the managing agents. In this context the auditors' report was addressed to the members of the syndicates themselves; and 
(ii) the annual solvency audit whereby auditors were obliged to report annually to Lloyd's and the DTI on the solvency of the Names.
The role and duties of panel or registered auditors are described in chapter 11. The role of the auditors in relation to RITC is described in chapter 14. 
The Names' case that Lloyd's knew or was reckless as to the fact that the Lloyd's market's exposure to asbestos-related claims required reserves and RITC to be set at figures far in excess of those which were set out in the relevant Aggregate Results/Globals, pre-supposes that all or a significant number of auditors concerned with syndicates subject to asbestos-related risks were negligent during the Relevant Period. Again it is necessary to distinguish between syndicates that wrote run-off contracts, and those which were simply concerned with their own book of business. As to syndicates that wrote run-off contracts, I refer to the Merrett judgment. As to syndicates which were simply concerned with their own book of business, no two syndicates had the same book or the same protections. 
The Committee/Council of Lloyd's were generally entitled to assume that auditors were performing their duties competently. The review of the AU 38s and the steps taken where a syndicate's reserves for the year prior to the year of account being closed were found to have an apparent inadequacy greater than 15% of the reserves, are described in chapter 11.

(g) Meetings of Panel Auditors
Panel auditors during the Relevant Period were addressed by Mr. Murray Lawrence, Mr. Ted Nelson, Mr. Ralph Rokeby-Johnson and Mr. Robin Jackson on the question of (amongst other things) asbestos-related claims. A number of these occasions are referred to in chapter 19. I find that those persons who provided information to panel auditors in this way from time to time, did so (in the case of Mr. Nelson probably did so) honestly and responsibly.

(h) Members' Agents
The role and duties of a members' agent are described in chapters 10 and 12.
It was the duty of a members' agent to give a prospective Name/a Name comprehensive and objective advice among other matters as to:-
(i) whether membership of Lloyd's was appropriate to his/her circumstances;
(ii) the consequences of membership in the light of a thorough understanding of his/her circumstances;
(iii) which syndicates to join and in what amounts, on an annual basis, when decisions had to be made for the following underwriting year;
(iv) the different classes of business;
(v) factors which had materially affected past results of syndicates, or which might materially affect future results of syndicates e.g. asbestos and pollution claims, the impact of catastrophes etc;
(vi) risks associated with LMX syndicates, long-tail syndicates, PSL syndicates etc;
(vii) the quality of individual syndicates;
(viii) where a particular syndicate involved some special, additional or unusual risk, an appropriate warning coupled with appropriate information;
(ix) other information as was necessary to enable the Name to make reasonably informed decisions about portfolio selection;
(x) the risks of membership and the concept of unlimited liability;
(xi) the fact that he/she or his/her estate would remain liable until all the syndicates on which he/she participated had been closed by reinsurance to close.

(i) The Rota Committee
Paragraph 4.36 of the Neill Report referred to two central elements in Lloyd's assessment of the effectiveness of the briefing given by agents to prospective Names, the Verification Form and Rota interview. As to the latter the Neill Report stated;-
"4.38...There can be no fault with the theory that prospective Names should be interviewed by experienced market practitioners to test whether they understand all the implications of membership. It is an unusual and valuable procedure. We have, however, received two general criticisms of the practice. One is that it comes too late in the day in that by the time a candidate is interviewed he is already committed in a psychological sense to membership. We have also had some evidence from both external and working members that points to a degree of superficiality in the questioning that takes place. There is a related anxiety that a Name may be inhibited by the presence of his agent from raising queries or giving candid answers to questions.
4.39 If the other changes in the recruitment procedure designed to improve the introductory information given to prospective Names and to raise the standards of agents in advising Names who approach them are introduced, we do not think it necessary to change the timing of the Rota. As to the nature of the interview, there must be limits to what can be accomplished in the space of what may be as little as 15 minutes. We are, however, anxious that Lloyd's should do all they can to ensure that it is not a mere formality. Apart from continuing to emphasise the point with Rota Chairmen, one way of furthering this objective would be to arrange the interview in such a way that for some part of it the agent would leave the room so that the candidate could be questioned on his or her own. We recommend that the Council adopt this procedure."
The conclusion of the Neill Report was that if the detailed recommendations in chapter 4 were followed up (including those set out above), Lloyd's would have a properly regulated recruitment process containing safeguards at least comparable with those envisaged elsewhere in the financial services sector.
I find that the Neill Report in the passage quoted above accurately reflected the different roles of members' agents and Lloyd's procedures. The duties of a members' agent included those set out above. The function of the Rota Committee was to test whether prospective Names understood all the implications of membership. There were limits to what could be accomplished in about 15 minutes. The Neill Report did not require any alteration to the nature of the questions asked by the Rota Committee Chairmen.

The Witnesses
I have set out in chapter 15 a broad description of the evidence of the witnesses and my assessment of that evidence. 

The Chronology of Certain Information Relevant to Asbestos-Related Claims for the Period 1978-1988
Appendix 3 contains a Chronology of certain information relevant to asbestos-related claims for the Relevant Period. The keys (SI = syndicates at interest or interested insurers; SS = syndicate specific; PA = Panel Auditors; AWP = Asbestos Working Party) represent an attempt to identify recipients of a document, but do not constitute a finding that any particular individual or syndicate received or was aware of the document or its content. Although Appendix 3 contains extracts from documents, I have of course had regard to the whole of each of the documents referred to (and all other material before the court).

List of US Cases Concerning Coverage for Asbestos Losses for the Period 1978-1988
Appendix 2 contains a list of US cases concerning coverage etc for asbestos losses for the Relevant Period.

An Overview of the Nature and Development of Asbestos-Related Claims
I have set out in chapter 16 an overview of the nature and development of asbestos-related claims.
Mr. Rayment in his witness statement identified the principal reasons why things looked so different at the end of the 1980s and in the early 1990s from the way in which they had looked in the early 1980s, when the problem had been appreciated as significant, but nothing like as serious as it eventually became. The reasons are of course interlinked and there may be others which should be identified. The starting point is the sheer volume of claims which eventually came to be made. Table 2 in chapter 16 illustrates the growth of the problem. 
Between the Borel decision in 1973 and the beginning of 1981, there were probably something in the region of 8,000 to 10,000 claims in an eight year period. In the period between 1981 and the Wellington Agreement, the filing pattern was (according to an AR dated 1 August 1988) "remarkably steady at 500 new claims per month." The "opening inventory" of the ACF in mid-1985 was about 25,000 claims. In the 18 month period after the Wellington Agreement the rate of claims rose initially to 700 per month and then to around 1000 per month. 
In 1987, the claims rose to 2,000 per month (a fourfold increase in the level of claims pre the Wellington Agreement), and then went up to 3,000 per month, before settling at 1,500 per month for a while. By 1990, this had risen again, so that in the early 1990's the rate was about 24,000 a year; an annual total which was broadly comparable to the entirety of claims in the 10 year period after Borel (1973 to 1983). The current rate of claims is around 60,000 a year. The current total volume of claims (including those that have been settled) is approximately 450,000.
These figures show that despite Borel and despite what is on any view a considerable volume of claims over the lengthy period between Borel and the Wellington Agreement, it was only after the Wellington Agreement that the filings of claims increased dramatically. The fact that the ACF dissolved within just three years after the Wellington Agreement demonstrates that asbestos-related claims did not proceed in the way that producers and insurers thought they would proceed.
The sheer volume of claims defied expectations and has made the problem much more serious and expensive than was anticipated. It was not, for example, an increase in the cost of settling individual claims which caused the problems; the recommended reserving for known claims has in fact stood up very well. Mr. Rayment said in his witness statement - "What caught us, and the rest of the insurance industry, out, was quite simply the unforeseen increases in the number of claims". 
I considered in chapter 16 some of the interlinked reasons why things looked so different at the end of the 1980s and in the early 1990s, from the way in which they had looked in the early 1980s.

Differing Views as to the Likely Outcome of Asbestos-Related Claims. The Writing of Run-Off Contracts
I have referred in chapter 17 to the fact that differing views as to the likely outcome of asbestos-related claims were held in the Lloyd's market (and elsewhere) in the late 1970s and early 1980s. One illustration of this is found in the fact that Outhwaite, Merrett, Meacock and other syndicates wrote a number of run-off contracts. 
It is to be noted that according to the Freshfields' Report, of some 1600 Names on the Outhwaite 1982 year, about 345 were working Names.

Open Years
I have referred in chapter 18 to the extent to which the number of open years increased during the Relevant Period.

Examples of Estimates of Asbestos-Related Claims Proving to be Incorrect
I refer to a number of examples of estimates of asbestos-related claims proving to be incorrect.
Mr. Rayment cited Johns Manville Corporation as an example of estimates of potential claims proving to be incorrect. In August 1986 the United States Bankruptcy Court for the Southern District of New York signed an order pursuant to which Johns-Manville undertook an extensive campaign designed to provide the maximum amount of publicity, with respect to the confirmation process of the Plan before the court. The campaign provided for national television and radio advertisements, newspaper advertisements in the six leading US and Canadian newspapers and in the largest circulation daily newspaper in each State, the District of Columbia and each Canadian Province. This publicity campaign was designed to inform as many future asbestos claimants as possible of the impact of the Manville reorganisation, upon whatever rights they might have against Manville as Debtor. I refer to the decision of Judge Lifland dated 18 December 1986 and the subsequent appeals. In his judgment dated 19 January 1995 Senior District Judge Weinstein of the United States District Court E and SD New York said:-
"When the distribution plan was confirmed in 1986, it was established that the Trust would receive approximately 83,000 to 100,000 claims over the course of its life into the middle of the next century. To date, the Trust has received approximately 240,000 claims and it is expected to receive hundreds of thousands more."
Manville has continued to receive claims which are now paid from the Manville Personal Injury Settlement Trust. This trust was set up as a result of the Manville bankruptcy proceedings. The number of claims against Manville, including claims administered by the trust, now exceeds 400,000.
As to PCW Mr. Lord said "For eight months we dealt with this matter with the greatest possible care" (with the assistance of Mr. Nigel Holland and Mr. Charles Skey) "and two years later it became quite clear that we got it wrong."
Mr. Louw (who was called by the Names) was cross-examined by reference to the accounts of Mercantile & General Reinsurance Co Ltd. He agreed that the reserves in the 1980s were inadequate to meet the weight of asbestos-related claims. He accepted that the Mercantile added to its reserves year by year in order to meet asbestos claims, but those reserves proved inadequate. The size of the reserves for asbestos and pollution claims in 1995 was greater than the entire reserves for the whole of the non-proportional account in some of the 1980s.
The first Names' action to go to trial (Stockwell v Outhwaite) settled in about January 1992, without judgment being delivered. The Names recovered £116 million. Mr. Stockwell pointed out that this proved insufficient - "It went within two years".
There are a number of examples of underwriters refusing offers of run-off protection in the early 1980s which, with the benefit of hindsight, they would have been wise to accept. 
As to certain reports relied on by the Names as to the possible impact of asbestos-related claims, Mr. Keeling said:-
"Six months ago we had some very learned Government experts saying Y2K was going to cost between $600 billion and $1.5 trillion...it actually came out at very little, if anything. ...As an underwriter, you see an awful lot of Governmental and scientific reports and you've got to value them."
There is, of course, a marked distinction between a RITC arrived at by the underwriter/managing agents (i) erroneously and (ii) negligently; the same applies to an unqualified audit report.

The Relevant Period
In chapter 19 I have set out a chronology of certain important events in 1978 to 1988 (the years in question).
If there were factors which affected or might affect the adequacy of the reserves, the syndicate auditor was required, under Clause 3 of the Audit Instructions, to report to the Committee and obtain their instructions before issuing the Audit Certificate/Syndicate Solvency Report. The letter from Neville Russell dated 24 February 1982 was written pursuant to Clause 3. I find that the Murray Lawrence letter was sent to all underwriting agents (including members' agents) and all active underwriters, as stated in the final paragraph of the letter. Further, I find that the Murray Lawrence letter and the Randall letter were an honest response to the issues raised by the Neville Russell letter.
At a meeting of the Audit Committee on 6 April 1982 Mr. Randall reported that there had been little or no reaction from the market following the circulation of the Murray Lawrence letter. It is important to note that the panel auditors appeared to have been content with the guidance in the Murray Lawrence and Randall letters. They did not seek further instructions as to asbestos-related claims from the Committee/Council at any time during the Relevant Period.
A telling comment is found in a document entitled "Narrative Which Could Be Adapted To Become A Draft Affidavit" where Mrs. Mackenzie-Smith wrote - "In the summer of 1994, I first saw the now famous Murray Lawrence letter... The letter came as a shock to me as it seemed to demonstrate that Lloyd's were not after all fraudulent but had in fact disseminated the information concerning impending losses to "all underwriting agents". I immediately made enquiries in all directions and learnt that no agent could be found who admitted having received the letter and that there was a possibility that it had never been sent". Thus Mrs. Mackenzie-Smith appears to have accepted that if the letter was sent to all underwriting agents, "Lloyd's were not after all fraudulent". I have found that the Murray Lawrence letter was sent to all underwriting agents (including members' agents) and all active underwriters, as stated in the final paragraph of the letter. 
The new Council which met for the first time on 5.1.83 comprised three constituent groups, working Names, external Names and persons nominated by the Council and confirmed by the Governor of the Bank of England. Chapter 19 contains a number of references to efforts made, particularly by nominated members, to improve among other matters syndicate accounting and disclosure of information to prospective Names. I regret that I did not hear evidence from Mr. Ian Hay Davison who plainly made a major contribution towards improved disclosure. He wrote in a memorandum dated 9 February 1984 to Mr. P. A. R. Brown:-
"As to syndicate accounting, I believe in all honesty it can be said that we have made great progress in arranging for the publication of syndicate accounts and by incorporating by byelaw certain basic essentials which will go to Council on 13 February...disclosure is the name of the game and disclosure is what we are achieving. There is an inevitability about the work of accountants in this field which even the high Tories on the Committee know they cannot reverse."
The hand of Mr. Davison at work can be seen, for example, in the review procedure for syndicate accounts approved by the Council of Lloyd's on 11 June 1984.
At a meeting of the MSSC on 17 December 1984 Mr. Murray Lawrence expressed the view that Lloyd's should not pass judgment on syndicates' reinsurance to close. This should, he said, be left to managing agents and auditors. This point of view was representative of the then current thinking of the Committee/Council, and in my judgment reflected the distinction between the role of the Committee/Council and the duties and responsibilities of managing agents/underwriters and auditors of individual syndicates. A similar point was made by Mr. Fredjohn (who was called by the Names). Mr. Fredjohn said that in his opinion it was not the Council's job to try and second guess the work carried out by managing agents and auditors. The Council set the regulatory framework in which others operated. Further Mr. Murray said when giving evidence that in his opinion it was no part of Lloyd's function to usurp the role of the agents, working in conjunction with their auditors, in relation to the closure of syndicates' years of account, nor did the Committee/Council of Lloyd's have the information, time or resources to interfere in this area of the agents' businesses.
I refer again to the passages quoted in chapter 19 from the Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87. I also refer to the comments made by the Chairman of Lloyd's from time to time at meetings of members, quoted in chapter 19. There were repeated references to the problems presented by asbestos-related claims and other long-tail risks, including in particular pollution.
Further the reports of individual syndicates during the Relevant Period contained numerous references to the problems presented by asbestos-related claims (and other long-tail risks, including in particular pollution). Some examples of such references are set out in Appendix 3.
In the Chatset Lloyd's Syndicates Results 1978 (published in 1981) Mr. Sturge wrote "Asbestosis has been described as the largest ever insurance loss and will not only affect the non-marine market." Despite this in March 1985 Mr. Sturge (as an experienced market commentator) wrote that Names could look forward with confidence to the latter half of the 80s in the knowledge that it should be a profitable period and one in which self-regulation would be seen to be working for the community as a whole.

The Allegation that Lloyd's Deliberately Chose not to make an Independent Investigation and Assessment of the Global Exposure of the Lloyd's Market to Asbestos-Related Claims (Including IBNR).
The Names say that Lloyd's knew or was reckless as to the fact that the Lloyd's market's exposure to asbestos-related claims required reserves and RITC to be set at figures far in excess of those which were set out in the Lloyd's Aggregate Results/Global Reports and Accounts as at 31.12.81 to 31.12.87. (The Aggregate Results/Globals simply aggregated the audited trading results of all syndicates in the market). The Names further say that Lloyd's deliberately chose not to make an independent investigation and assessment of the global exposure of the Lloyd's market to asbestos-related claims (including IBNR). Instead (say the Names) Lloyd's put forward as safe and reliable, year by year, figures which could not be reconciled with current claims information and closed their eyes throughout the Relevant Period to the implications for external Names.
The Names rely in this connection on the evidence of Mr. K. V. Louw who was not called as an expert witness but as a "technical" witness. I repeat the comments I made on Mr. Louw's evidence in chapter 15.
The basic approach to the calculation of a reserve figure for outstanding asbestos claims started with the attorneys recommending a reserve figure in relation to each policy on which they were instructed. The claims manager of the particular syndicate then identified the extent to which his/her syndicate had subscribed to that policy, and determined a reserve in the light of the advice given by the attorneys. The position of each syndicate would vary, depending upon , for example, which producers it had insured, the years it had covered, the levels at which it had written, the deductibles contained in the policies, and the limits of those policies. Consideration would then need to be given to the impact of the syndicate's own reinsurance programme. Mr. Rayment did not believe that it was possible or appropriate for any single syndicate to short-circuit this approach (for example by simply applying some overall percentage to a notional cost per claimant).
I refer to Mr. Rayment's detailed comments on the Names' calculations. I accept Mr. Rayment's evidence that the only way in which a reserve requirement could, and indeed should, have been worked out, was by each syndicate looking at its own inwards book of business, looking at its own reinsurance protections, working out its own outstandings figures, and forming its own view in the light of all the information available to it, as to what its IBNR estimate should be, and hence arriving at its own decision as to what its reinsurance to close should be. Mr. Rayment said that without knowing what business had been written by any particular syndicate, and without knowing its reinsurance protections (including time and distance policies and run-off policies), he would have been in no position to second-guess the decisions taken by other syndicates as to their RITC calculation. Lloyd's was in no better position. Further the Lloyd's market was a very competitive market place: each syndicate would keep its own business to itself.
Mr. Rayment's views as to the extreme difficulties that would have been encountered in the Relevant Period, had Lloyd's sought to make an independent investigation and assessment of the global exposure of the Lloyd's market to asbestos-related claims (including IBNR), are confirmed by the experience of the early 1990s.
The Rowland Task Force appointed McKinsey & Co to work with Task Force. They provided analytical support. The Task Force attempted to scale the potential size of the market's ultimate liability for asbestos and pollution claims. However, the Task Force concluded that to do this at a market level would be extremely complicated, and the uncertainties were too great to come out with reliable estimates based simply on an overview.
The Open Years Panel (with analytical support provided by Mercer Management Consulting) spent a lot of time trying to put a figure on what the cost would be to close all the open years. It did not succeed because of the very great uncertainties attaching to US long-tail liabilities, especially pollution.
The proposals of the Business Plan in relation to the management of the old years became known as the "NewCo Project". An essential feature of the proposals was the proper capitalisation of NewCo, on the basis of appropriate and equitable reserving standards. The reserving project commenced in the autumn of 1993, with the appointment of Heidi Hutter, a US actuary with extensive experience of non-life reinsurance, to lead the project. The project expanded in May 1995, as part of the R&R proposals, to cover all 1992 and prior years liabilities. It was not completed until May 1996, almost three years after it commenced. It was probably the largest reserving project ever undertaken in the insurance industry. It involved many of the leading actuarial and accounting firms in the insurance industry, including Tillinghast, Ernst & Young, Coopers & Lybrand Actuarial Insurance Services, Neville Russell and Mercer Management Consulting. 
Mr. Lord answered the Names' allegation in practical terms. He said that there was no doubt that information could have been assembled in an aggregate form. "One would then have had... the ability to say to the underwriters, 'Are you aware of this? Are you clear that in your reserving you have taken full account of the situation which this reflects?'. My problem is this: that if the underwriter had said, 'Yes I am, and I have done my triangulations with this in mind, and to the best of my ability my reinsurance to close reflects all this and my auditors have taken no exception to anything that I have done', then I think that in the Lloyd's system at that point one comes to an end." Mr. Lord added that the General Review Department would not have had the technical insurance expertise to re-work an underwriter's reinsurance to close. "One could only have done that by putting in a team of competing underwriters... to go through the numbers. That actually is what qualified Lloyd's auditors are supposed to do."

Recruit to Dilute
As to "recruit to dilute" Mr. Sturge (who was called by the Names) said that up to 1985 he did not believe there was any "recruit to dilute". He was less happy about what happened in 1986 and 1987. He thought the Council of Lloyd's should have put some check on the growth of capacity - "The wrong people were becoming members of Lloyd's, those who did not really have any real wealth". It is again necessary to distinguish between the role and duties of members agents and the functions of the Committee/Council.
It was the duty of a members' agent to give a prospective Name comprehensive objective advice as to whether membership of Lloyd's was appropriate to his/her circumstances. Thus in Sword-Daniels v Pitel and Others [1994] LRLR 10 Gatehouse J said at 14:-
"More than one expert witness expressed the view, with which I agree, that in the light of Mr. Sword-Daniels' disclosed circumstances he should have been discouraged from joining Lloyd's. His only substantial asset was a half-share in the equity of his house, which had to be charged to the bank in order to obtain the guarantees totalling £100,000 which were necessary to establish the required minimum of readily realisable assets. Beyond this, his assets were minimal. Although he was a higher-rate tax payer his professional income at the time was modest... so there was an insubstantial tax cushion to absorb any serious loss.
No complaint is made, of course, that Mr. Sword-Daniels should not have been put forward as a suitable member, but I think he was at least close to the bottom end of any suitability scale, and it was clearly the duty of John Poland & Co, acting through Mr. Pitel, to make sure that they followed the safety-first approach which had been promised and on which he relied.
How, then, did it come about that in 1987, Mr. Sword-Daniels' first year for underwriting, no less than £80,000 out of his allocated premium income of £190,000 was placed with seven syndicates (out of a total of fourteen) which, on any view, were "high-risk"?..."
Further, as I pointed out in the Merrett judgment at page 314, if the amount to be charged by way of premium in respect of the RITC could not be arrived at with a reasonable degree of accuracy, it would be fundamentally wrong if the managing agents/underwriter, instead of leaving the account open, closed the account and sought to expand the syndicate in the hope that by doing so the (expanded) syndicate would be able to weather the difficulties. To the extent that this happened it would form the basis of a claim against the managing agents/underwriter and not the Committee/Council of Lloyd's.

The Allegation that the 1979 Year of Account should have been left Open by Syndicates Affected by Asbestos-Related Claims
I reject the contention made by a least one witness called by the Names, that the 1979 year of account should have been left open by syndicates affected by asbestos-related claims. I refer to the analysis in the Merrett judgment in relation to the closure of 1979 into 1980 in May 1982 (year 1 in that case). The Kerr Report's assessment of the claims against managing agents and members' agents in respect of syndicates 418/417's 1979 closed year was "hopeless". I did not of course have the Kerr Report before me when I wrote the Merrett judgment.
Further, there was so many variables among syndicates affected by asbestos-related claims - for example, what had the syndicate written; at what levels; what were the policy limits; what was its reinsurance protection; had it bought a run-off; had it got rollovers or time and distance policies; did it have surplus in its short-tail or other reserves etc?
Further, it is worth repeating again paragraph 14.8 of the Kerr Report:-
"14.8 We have carefully considered all the events in 1980 to 1982 on which the Names rely in support of their contentions that 1979 should have been kept open, culminating in the Neville Russell letter in February and the Murray Lawrence letter in March of 1982. But we are not persuaded that these arguments fairly or adequately reflect the overall market perception (or lack of perception) of the likely future dimension of the asbestosis claims experienced at the time... The choice appears to us therefore to lie between the conclusion that the entire market with long-tail US liabilities was negligent in closing 1979 or that the allegation of negligence in this regard is based on hindsight. In our view the latter conclusion is more likely to be correct.

The Case in Fraud Fails
In case I am wrong as to the alleged representations or any of them, for the reasons set out above I find that other ingredients of the tort of deceit were not made out. In particular I find, for the reasons set out above, that the Names have not proved fraud in the sense set out in chapter 9 above, under the heading 'The Tort of Deceit'.

23. E&O COVER AT LLOYD'S
In the course of his evidence, Sir David Rowland said that E & O cover covered 12 months at a time and was on a "claims made basis". It was possible that external Names were underwriting the E & O insurance of their own agent. "One of the very big problems (was) the recycling of the risk around the very people (the Names) who were involved in seeking to recover (in the Lloyd's Litigation) from their agents." Thus E & O cover was provided within the very market it was intended to protect. The same was true for personal stop-loss. "It was this whole element of recycling and double-counting which caused a great deal of (the) problems".
By letter dated 30 June 2000 Freshfields helpfully provided a schedule which sets out the E & O Indemnity Insurance requirements from 1981-1993.
From 10 April 1991 the Council decided that members' agents would not be required to arrange E & O insurance in 1991. On 11 April 1991 the Chairman (Mr David Coleridge) wrote to all underwriting agents advising them of the removal of the mandatory errors and omissions insurance requirements for members' agents that year. This decision was later reaffirmed for 1992. On 12 June 1992, the Junior Deputy Chairman wrote to all agents and Names, advising them of the removal of the mandatory errors and omissions requirements for all agents for 1993.
The relevant background is described in Sir David Rowland's third witness statement. I also refer in this connection to correspondence between Mr Coleridge and Dr and Mrs Munn between September 1991 and May 1992.

24. THE MARKET SCANDALS. THE FAILINGS REVEALED BY THE LLOYD'S LITIGATION
THE MARKET SCANDALS

The Revelations of Late 1982 and the Subsequent Disciplinary Hearings
The Neill Report described the revelations of late 1982 in the following terms:-
"3.12 In the same month that the Lloyd's Act received Royal Assent, the first signs of the major scandals that have subsequently damaged Lloyd's reputation began to surface. Press reports revealed that … Deloitte Haskins & Sells were conducting a special review of the Alexander Howden Group following the latter's takeover by Alexander & Alexander Services Inc. Towards the end of July 1982 it was announced that Mr Kenneth Grob, chairman of Howden, was resigning from the board of Alexander & Alexander, and, together with the finance director of Howden, Mr Allan Page, was to retire from Howden in December. On 1 September 1982 Alexander & Alexander filed a statement with the Securities and Exchange Commission … in Washington which said that they had discovered that 'Howden had entered into some reinsurance transactions with companies which were owned and controlled on an undisclosed basis by four persons who have now ceased to be officers or directors of Howden and are no longer employed by Howden'. It was estimated at the time that there was a deficiency in the tangible net assets of Howden up to $25m. There followed a period of intense press speculation, and on 8 September, Lloyd's announced that they had asked another firm of accountants, Ernst & Whinney, to 'enquire into the various matters referred to in the recent public statements concerning certain companies within the Alexander Howden Group'. On 20 September 1982, Alexander & Alexander made a further statement to the SEC announcing that suits had been filed in the United Kingdom against Messrs Grob, Page, Comery, Carpenter and Posgate seeking remedies for breach of fiduciary duty and misrepresentation. On the same date, the Secretary of State for Trade announced that he proposed, under Section 165(1)(b) of the Companies Act 1948, to appoint investigators into the Alexander Howden Group, and Lloyd's ordered both Alexander Howden Underwriting Limited and Posgate & Denby (Agencies) Limited to suspend Mr Posgate from his posts of underwriter and company director. 
3.13 The second, and perhaps most notorious disclosure occurred on 2 November 1982, when Lloyd's announced that Mr Peter Dixon, chairman of PCW Underwriting Agencies Limited (a subsidiary of Minet Holdings plc) and WMD Underwriting Agencies, had voluntarily suspended himself from all duties with the agencies. The decision was taken pending an investigation by Lloyd's arising out of information supplied by Alexander Howden concerning quota share reinsurance placed by PCW and WMD. … on 4 November, there was an announcement of the appointment of inspectors by the Secretary of State for Trade to investigate the affairs of Minet Holdings. On 16 November Lloyd's appointed Mr Peter Millett QC and Mr Nigel Holland FCA to investigate the Howden and PCW affairs. In March 1983 they were joined by Mr Simon Tuckey QC who was given special responsibility for PCW matters. In the event two separate investigations were conducted into Howden and PCW, carried out by Messrs Millett and Holland, and Messrs Tuckey and Holland respectively. A third investigation, to be carried out by Mr Anthony Colman QC and Mr Stephen Hailey FCA, was established by Lloyd's on 15 December 1982 into matters relating to Fidentia Marine Insurance Company Limited (a Bermudan company) and syndicates for which Mr T.R. Brooks and Mr T.J. Dooley were underwriters. The investigators were asked, among other things, to look into reinsurance placed with Fidentia and the extent to which the managing agents of the Brooks and Dooley syndicates, or the brokers placing the business, had any interest in Fidentia or its related companies."
The Neill Report summarised the subsequent disciplinary hearings as follows:-
"3.18 In December 1984, following the release of the investigation report into Fidentia to affected Names on 16 November 1983, the expulsion of Mr Brooks and the 21 months suspension of Mr Dooley were announced. The charges before the Disciplinary Committee concerned the making of secret profits through the placing of reinsurance with Fidentia. It was estimated that a benefit of approximately £6.2m was derived by Fidentia. 
3.19 In July 1985 it was announced that a number of those involved in the Howden affair, including Messrs Grob, Comery, Carpenter and Page, had been expelled from the Society. The main charges before the Disciplinary Committee included the capitalisation of a Panamanian corporation, Southern International Re Company SA ('SIR'), with misappropriated funds: the use of SIR, which was not authorised as a reinsurance business, to reinsure Lloyd's syndicates; the acquisition of the Banque du Rhone … with funds derived from Lloyd's syndicates; and the falsification of the accounts of the Alexander Howden Group. It was estimated that some US$30m had been misappropriated. A finding of guilt leading to the expulsion of Mr Posgate was overturned on appeal, although he was suspended for 6 months on lesser charges. 
3.20 In November 1985, the expulsion of Mr Dixon and Mr A.A. Sampson … and lesser penalties against other members of Lloyd's were announced following the disciplinary hearing into the PCW matter. (Lloyd's had not been able to bring charges against Mr Cameron-Webb because of his resignation from the Society). The charges before the Disciplinary Committee concerned the misappropriation of funds via insurance contracts to companies which were not genuinely in the business of reinsurance, which never paid any claims on the contracts and which were owned by the directors of PCW, WMD and their friends and associates; further charges related to the misappropriation of funds via two small (or 'baby') syndicates whose members were Mr Dixon, Mr Cameron-Webb and their associates and relatives. The report of the disciplinary proceedings suggested that a sum of at least £29m was lost through the reinsurance schemes, together with further undetermined amounts lost through the baby syndicates. 
3.21 The findings of the investigations into these three cases revealed a number of facts about the inadequacy of the pre-1982 regulatory framework and the standards of conduct that had prevailed in the market, evidence of which had not been before the Fisher working party. Two specific vehicles of abuse were identified. One was the use of baby syndicates whereby agency directors and those closely associated with them were favoured either by receiving more profitable business than that directed to other syndicates under the control of the same underwriter, or by the manipulation of funds between the syndicates. The other was the placing of reinsurance premiums on behalf of syndicates with companies (mostly off-shore) in which the agency or holding company director had a financial interest. Some of these related organisations were not reinsurance companies at all, but simply a means by which premiums due to Names could be diverted. Others offered genuine reinsurance, but under favourable terms to the company and allowing those involved to make secret profits at the expense of the Names. 
3.22 Apart from these particular matters, however, the investigations drew attention to an absence of understanding on the part of many working members of the principles of the law of agency. The Lloyd's investigators into PCW told the Corporation (in a letter dated 20 January 1984) that it was apparent to them that many of the Lloyd's community in senior positions 'were not even vaguely aware' of the legal obligations on agents to act at all times in the best interests of their principals, not to make secret profits at their principals' expense and not to disclose fully all matters affecting their relationship with their principals."
The report then referred to the resignation of Mr. Hay Davison and the PCW affairs. The report then described the development of the new regulatory framework as follows:-
"3.28 The events described in the preceding paragraphs have led a number of observers to conclude that the framework within which the Society is now regulated is inadequate. This judgment appears to be based largely on the assumption that since the Lloyd's Act of 1982 was passed before the scandals came to light, it could not by definition have provided a regulatory framework capable of ensuring that similar problems did not recur. We have not made that initial assumption. Our objective, as stated in paragraph 2.21, has been to assess the effectiveness of what the Council of Lloyd's have done in implementing the new regime. So, the succeeding chapters of the report review the impressive volume of legislative activity undertaken since 1982. This is exemplified by the establishment of an elaborate structure of committees and sub-committees (which we discuss further in Chapter 12 and list in Appendix 15) and by the volume of legislation which has been passed (some 46 byelaws and three regulations as well as two codes of practice)."

Memorandum prepared by Lloyd's in Response to the Neill Committee of Inquiry
I refer to a memorandum prepared by Lloyd's in response to a letter from the Secretary to the Neill Committee of Inquiry dated 12 March 1986. The letter sought to establish the extent to which conclusions reached in the conduct of various Lloyd's investigations since 1982 had been reflected in byelaws. The memorandum contained a summary of five major investigations together with a description of those regulatory measures that should reduce the risk of fraud, dishonesty or negligence and facilitate their earlier detection. The following summary of the investigations into Brooks and Dooley, Alexander Howden, Multi Guarantee, and Bellew, Parry and Raven are drawn from the memorandum. 
Brooks and Dooley
In 1967 Mr T.R. Brooks and Mr T.J. Dooley founded Brooks and Dooley Underwriting Limited, a Lloyd's managing agent in which they had a 75% and 25% interest respectively. Along with three other related Lloyd's agencies, Brooks and Dooley jointly managed a total of eight Lloyd's marine and incidental non-marine syndicates. 
In late 1969 or early 1970 Mr Brooks conceived the idea of forming a group of companies with various functions in the insurance industry, which would include an insurance company and a Lloyd's managing agency. Mr Brooks decided upon Bermuda as the appropriate venue for incorporation of the insurance company, which was to be called Fidentia. Fidentia was wholly owned by Mr Brooks and Mr Dooley and from the date of its incorporation in 1970 it underwrote reinsurances of the Brooks and Dooley syndicates in London, either by way of direct reinsurance or by way of retrocession from other insurance captives owned by various Lloyd's interests. At all material times Mr Brooks not only controlled the underwriting of the Lloyd's syndicates, but also the underwriting conducted by Fidentia. In this way he was able to place the syndicates' reinsurances with Fidentia on terms clearly beneficial to Fidentia. 
The Lloyd's Committee of Inquiry made the following findings:-
(i) The reinsurance transactions concluded between the Brooks and Dooley syndicates and Fidentia were genuine risk contracts, and Fidentia from time to time paid substantial claims on these contracts. In fact these reinsurance contracts often proved to be of considerable benefit to the syndicates concerned. 
(ii) However, by means of these transactions Mr Brooks and Mr Dooley also obtained considerable benefit in breach of their fiduciary duties to Names on those syndicates. Whilst secret profits were made by Mr Brooks and Mr Dooley it could not be said that the transactions, taken as a whole, caused substantial prejudice to the interests of the Names. 
(iii) The fact that the syndicates in question were subject to joint management and de facto control by Mr Brooks, rather than the management of independent agents, contributed to the unsatisfactory events mentioned above. 
(iv) The establishment of a preferred syndicate by Brooks and Dooley in 1970 was objectionable. 
(v) The standards and practices employed by the auditors were inadequate.
(vi) Many of those involved in the management of Lloyd's syndicates were remarkably ignorant of the duties and obligations imposed upon them by the law of agency. Similarly, the Lloyd's brokers who placed the reinsurance policies in question only had the faintest concept of their general responsibilities as regards the placing of reinsurance and their particular responsibilities with regard to related party transactions. 
Alexander Howden
(1) Wigham Poland
The investigation revealed the existence of a funding policy under which the contributors were two groups of syndicates. However, whereas one group of syndicates had contributed 98% of the funds accumulated under the policy, the underwriter and deputy underwriter for the one group of syndicates, who were also joint active underwriters for the other group of syndicates which had contributed only 2% of the funds, caused the entire fund to be paid out to the latter group. The latter group received and retained the entire sum for some 14 months and then repaid approximately 90% of it. 
The Disciplinary Committee found that the underwriters owed a duty of care to the Names and also a fiduciary duty to safeguard the Names' monies and to keep proper accounts. It found that there had been gross negligence rather than dishonesty. 
(2) Southern International Re/Banque du Rhone (SIR/BdR)
The investigation unearthed the following matters that lead to disciplinary proceedings:-
(i) The capitalisation of SIR (a Panamanian Corporation) with misappropriated funds.
(ii) Use of SIR as a reinsurer of Lloyd's syndicates (SIR was incorporated as a real estate corporation under Panamanian law and was not authorised to write insurance or reinsurance business). 
(iii) Acquisition of the Banque du Rhone by means of a conspiracy between seven participants to purchase the BdR from Alexander Howden Group secretly, without cost to the conspirators, with funds derived from Lloyd's syndicates. 
(iv) Personal benefits from SIR. It was alleged that the four persons who formed SIR caused SIR to enter into transactions for their personal benefit and that for this purpose funds were used which were dishonestly misappropriated by the use of reinsurance policies.
(v) Provision of favours to an underwriter with the intention of influencing his judgment. 
(vi) Falsification of accounts of AHG by switching funds from one company to another in order to deceive the US regulatory authorities, the board of AHG, its shareholders, directors and auditors. Further the true state of affairs in Sphere and Drake, the flagship insurance company in the Howden group, was concealed. 
The inquiry and subsequent disciplinary proceedings revealed abuse of trust and dishonesty.
Multi Guarantee
This inquiry arose from the activities of Multi Guarantee Company Ltd, a non-Lloyd's insurance broker specialising in extended warranty schemes for consumer electrical goods. Certain of these insurances were placed in the Lloyd's market by a non-Lloyd's broker operating under an umbrella arrangement with a Lloyd's broker. Policy holders were misled both as to the existence and the extent of the cover placed at Lloyd's, with consequent detriment to the name and reputation of Lloyd's. Whilst there was dishonesty on the part of the principal of Multi Guarantee, a Lloyd's Disciplinary Committee found, inter alia, that the Lloyd's broker had failed adequately to supervise the activities of the non-Lloyd's broker under the umbrella arrangement.
PCW
In 1967 Mr Cameron-Webb and Mr Dixon founded PCW, a Lloyd's managing agency. Despite the fact that it was taken over in 1973 by JH Minet and Company Limited, it remained at all material times under the effective management and control of these two persons. Along with WMD (another Lloyd's managing agency, in which PCW had a 40% shareholding) it managed a number of Lloyd's syndicates, principally in the marine and non-marine markets. Throughout the period covered by the investigations Mr Cameron-Webb was the active underwriter for some 30 syndicates managed by PCW Agencies. This enabled the PCW principals to manipulate the underwriting policy of all the syndicates they managed at their will. 
For the accounting years 1970 to 1981 inclusive, Mr Cameron-Webb and Mr Dixon caused the PCW and WMD syndicates to effect a large number of quota share reinsurance contracts with (or which were retroceded to) a succession of "reinsurance companies" in Guernsey, the Isle of Man, Gibraltar and Geneva. All these companies were controlled and beneficially owned by the directors of PCW, WMD or their friends and associates. These companies were not genuinely in the business of reinsurance at all and no monies were ever paid by way of claims to the syndicates on those reinsurances. Their sole reason for existence was to benefit Mr Cameron-Webb, Mr Dixon and six other directors of PCW Agencies. For the underwriting years 1968 to 1982 inclusive Mr Cameron-Webb operated what he called the "Intermediate Programme". This involved the placing of a number of excess of loss reinsurance policies with off-shore insurance companies (nearly all of which were beneficially owned by Mr Dixon and Mr Cameron-Webb). The Intermediate Programme was essentially a funding policy ostensibly for the benefit of the PCW Names. However, some of the monies involved were improperly used for the benefit of Mr Dixon and Mr Cameron-Webb. 
For the accounting years 1970 to 1981 inclusive, PCW managed syndicates 954 (marine) and 986 (non-marine) on which the only Names were Mr Cameron-Webb, Mr Dixon and five close business associates. The syndicate accounts for the underwriting years 1970 to 1979 showed that profits of £1.96m were distributed to the seven Names on the syndicates. However, in addition to these profits, further sums were paid to Guernsey for the benefit of these Names under "Tonner policies" in the sum of approximately £1.3m and to Geneva, purportedly under a quota share policy, in the sum of approximately £550,000. 
Between the years 1978 and 1981 PCW managed syndicate 893, whose members were the wives of Mr Cameron-Webb and Mr Dixon, a director and a number of senior employees of PCW. 
The accounting systems of PCW and its service company PCW (S) were not satisfactory. This facilitated the improper use of syndicate funds for paying directly or indirectly Mr Cameron-Webb's and Mr Dixon's private employees, for paying the tax liabilities of various PCW employees and for paying the expenses of three companies beneficially owned by Mr Cameron-Webb and Mr Dixon. 
The Inspectors appointed by Lloyd's to investigate the affairs of PCW and WMD, at an early stage in their enquiries, summarised their preliminary findings in a letter to Lloyd's dated 20 January 1984 which is referred to in Chapter 19. 
Bellew, Parry and Raven
The following summary should be read subject to the detailed findings of the Disciplinary Committee and the Appeal Tribunal.
In essence secret profits were made at the expense of the syndicates managed by the BPR companies, because BPR reinsurance business with related companies was not conducted on an arm's length basis, with the result that larger monetary benefits accrued to the BPR principals and/or their families. 

Disciplinary Verdicts
Serious failings were revealed by a number of Lloyd's disciplinary verdicts set out below. (The numbers 5 and 6 refer to the following offences included in paragraph 1 of the Misconduct, Penalties and Sanctions Byelaw (5 of 1983): 5 = conduct of any insurance business in a discreditable manner or with a lack of good faith; 6 = conduct which is dishonourable or disgraceful or improper). 
(1) I refer to the Summary of Lloyd's disciplinary verdicts as set out in Appendix 13 to the Neill Report between about 1984 and about 1986:-
FIDENTIA
(Mr T.R. Brooks 5 (on six separate charges); Mr T.J. Dooley 5 (on four separate charges)). 
ALEXANDER HOWDEN
Wigham Poland Policy (Mr I.R. Posgate 5 (on one charge); Mr M.E. Denby 5 (on one charge)).
SIR/BdR (Mr K.V. Grob 6 (on six charges) 5 (on one charge); Mr R.C. Comery (guilty of the same charges as Mr Grob); Mr M. Benbassat 6 (on two charges); 5 (on one charge); Mr I.R. Posgate 6 (on two charges - after appeal)).
J.H. Carpenter (Mr J.H. Carpenter 5 (on two charges)).
C.L.R. Hart (Mr C.L.R. Hart 6 (on eight charges)).
M.J.A. Glover (Mr M.J.A. Glover 6 (on one charge)).
G.R. Pope (Mr G.R. Pope 5 (on one charge)).
MULTI GUARANTEE 
(Mr R.L. Meddes 5 (on one charge) and 6 (on one charge); Mr S. Campbell-Ritchie 6 (on one charge)).
PCW
(Mr P.S. Dixon 5 (on five charges); Mr A.A. Sampson 5 (on five charges); Mr J.A.W.I. Hardman 5 (on five charges); Mr A.G.F. Oldworth 5 (on three charges); Mr C.E. Davies 5 (on five charges); Mr D.B. Hill 5 (on three charges); Mr J. Wallrock 5 (on four charges)).
D.G.T. McADAMS 
(Mr D.G.T. McAdams 5 and 6 (on one charge) and 6 (on one charge)).
(2) The Notice of Censure in respect of Sir Peter Green published in about May 1987 said:-
"Sir Peter Green … has been found guilty in proceedings before a Lloyd's Disciplinary Committee on a charge alleging the commission between 1977 and 1983 of acts or defaults discreditable to him as an underwriter contrary to Section 20 Lloyd's Act 1871 and which, if committed on 25th June 1986 when the charge was brought, would have constituted misconduct, namely the conduct of insurance business by him in a discreditable manner, within the meaning of paragraphs 1 (e) and 1A of the Lloyd's Byelaw entitled "Misconduct Penalties and Sanctions" as amended. 
The Disciplinary Committee and The Rt. Hon. The Lord Wilberforce PC, CMG, OBE, on appeal both stressed that no question of deliberate or dishonest conduct or pursuit of personal gain was raised against Sir Peter Green and that the charge against him was founded solely on seriously negligent acts of omission. 
The charge concerned a funding policy known as the Oil Rig Policy which Sir Peter Green, as the active underwriter for the Names on the syndicates concerned, arranged to be placed with the Imperial Insurance Company (Cayman Islands) Limited ("Imperial") of which he was a director and in which he had a financial interest as a shareholder (although his shareholding at no time exceeded 7.6% of the share capital). The Oil Rig Policy was renewed over a number of years. No criticism has been made of the terms of the policies between 1971 and 1977 but between 1978 and 1982 (save for a retroactive adjustment effective from 1st October 1981) the return to the Names from the funds accumulated under the Oil Rig Policy was manifestly inadequate and inequitable. This resulted from the failure of Sir Peter Green to review the return credited under the Oil Rig Policy at least once a year from 1978 to 1982. This failure was a breach of the duty owed by Sir Peter Green to the Names to ensure that the return arranged under the Oil Rig Policy was adequate and equitable in the Names' best interests and was not unduly beneficial to Imperial at the Names' expense. 
The Disciplinary Committee by a majority concluded that the repeated failure to perform this duty to the Names was sufficiently serious negligence as to constitute "discreditable" conduct for the purposes of Section 20 Lloyd's Act 1871 and the Misconduct Penalties and Sanctions Byelaw. 
In respect of this charge the Disciplinary Committee ordered that a Notice of Censure be posted in the Room and that Sir Peter Green pay a fine of £20,000."
(3) Penalties were confirmed by the Council in November 1987 in respect of:- A.W. Knott Becker Scott Ltd/Spicer & White (Underwriting Agents) Limited (Mr P.R. Marsh 5 (on five separate charges); Mr B.R. Spencer 5 (on five separate charges); Mr G.R.L.K. Becker 5 (on two separate charges); Mr J.S. Scott 5 (on two separate charges); Mr J.R. Cantouris 5 (on one charge)).
(4) Penalties were confirmed by the Council in December 1988 in respect of:- Bellew, Parry & Raven (Holdings) Limited (Mr A.H.B. Grattan-Bellew 5 (on three charges) and 6 (on three charges); Mr J.R. Parry 5 (on four charges) and 6 (on three charges); Mr F.C. Raven 5 (on four charges) and 6 (on three charges); Mr E.E. Nelson 5 (on three charges)).
In the Decision and Reasons Relating to Penalties and Sanctions dated 5 August 1988 Mr David Calcutt QC President of the Appeal Tribunal wrote in relation to Mr Nelson:- 
"Mr Nelson's misconduct was, in my view, not merely discreditable, but seriously so. In respect of the conduct which was the subject-matter of charge 10A, Mr Nelson was party to the arrangement whereby part of the interest earned on the relevant rollovers was paid to Surplus, so providing substantial benefit for Mr Nelson's family trust. No less than 35% of the monies received by Surplus enured to the benefit of his family trust: the balance of 65% was to be shared between the three BPR principals."

THE FAILINGS REVEALED BY THE LLOYD'S LITIGATION

Judgments in the Lloyd's Litigation - LMX Cases
The following judgments in the Lloyd's Litigation in LMX cases established that there were very serious failures on the part of underwriters/managing agents of a number of LMX syndicates:-
(1) 04.10.94 Deeny v. Gooda Walker Limited [1996] LRLR 183, Philips J. - case 32 in Appendix 1.
(2) 10.03.95 Arbuthnott and Others v. Feltrim Underwriting Agencies Ltd and Others, Philips J - case 42 in Appendix 1. 
(3) 19.03.96 Berriman and Others v. Rose Thomson Young (Underwriting) Ltd [1996] LRLR 426, Morison J. - case 66 in Appendix 1.
(4) 16.04.96 Wynniatt-Hussey and Others v. R.J. Bromley (Underwriting Agencies) PLC and Others, Langley J. - case 67 in Appendix 1.

Settlement/Judgment in the Lloyd's Litigation - Long-Tail Cases
The following settlement/judgment in the Lloyd's Litigation in long-tail cases involving syndicates that had had written run-off contracts, indicated/established that there were very serious failures at certain dates on the part of underwriters/managing agents of two long-tail syndicates:- 
(1) January 1992. Stockwell v. Outhwaite, Saville J. (Actions settled, the defendants agreeing to pay £116m without an admissions of liability) - case 3 in Appendix 1.
(2) 31.10.95 Henderson and Others v. Merrett Syndicates Ltd and Others [1997] LRLR 265, Cresswell J. - case 58 in Appendix 1.

Judgments in the Lloyd's Litigation - Portfolio Selection Cases
The following judgments in the Lloyd's Litigation in two portfolio selection cases established that there were very serious failures in the two instances on the part of the members' agents concerned.
(1) 12.04.94 Sword-Daniels v. Pitel and Others, Brown v. KMR Services Ltd, Gatehouse J. - case 25 in Appendix 1 (the decision of the Court of Appeal in Brown v. KMR Services Limited is reported at [1995] LRLR 241 - case 51 in Appendix 1).

Claims Not Considered by the Court
Numerous claims were outstanding at the time of the market settlement in September 1996. Although by the time of the market settlement the Court had heard the above lead or pilot cases in the LMX, long-tail and portfolio selection categories, no case involving a PSL syndicate had been heard. 
I refer to the Kerr Report for an independent assessment of the cases which the court had not heard at the time of the market settlement. In particular:-
(i) I draw attention to the assessments in the outstanding LMX cases, long-tail cases, and PSL/Miscellaneous cases. 
(ii) It is striking how few of the long-tail cases, involving syndicates other than those which wrote run-off contracts, received an assessment of medium or above and how many of the cases concerning the writing of PSL and EPP business received assessments above medium (i.e. upper medium or strong).
(iii) Claims by Names for negligent syndicate advice or selection fell outside the remit of the Kerr Panel, since such claims necessarily related to the particular circumstances of individual Names. Further the report mentioned the difficulties caused by claims founded on alleged misrepresentations to Names by members' agents or managing agents, often on a collective basis by accounts or reports sent to all Names. 

Some Faultlines
The Lloyd's Litigation and the evidence in this case have revealed a number of faultlines, some of which I refer to below.
Long-Tail Syndicates
Mr Murray said when giving evidence that (with the benefit of hindsight) the "asbestos and pollution experience … has … communicated to me that the annual venture with the reinsurance to close is almost impossible to apply to long-tail business … this is why I really believe the future of the market is for corporate capital".
Personal Stop Loss and EPP Business
I refer to the evidence of Sir David Rowland on this subject (see chapter 15) and to the views of the Kerr Panel as to claims in this connection.
Competence in the Lloyd's Market
Sir David Rowland accepted that competence in areas of the Lloyd's market was seriously lacking in the 1980's. "The level of ability of Lloyd's (was not, during the Relevant Period) at the level I would wish, looking backwards." Sir David added that there was a great deal of variability in the quality of members' agents. 
The Recruitment of Persons who should never have become Members of Lloyd's
In his evidence to the Treasury and Civil Service Committee on 13 February 1995 Sir David (then Mr) Rowland was asked "do you agree that people were encouraged to become Names in the 1980s who did not actually have the resources to be Names?" Mr Rowland answered "Yes. They had to pass the relevant tests, they had to show the minimum necessary, but if you are asking me a general question, I think that many people came into membership, either stretching themselves being encouraged by their banks and other advisors to do so, and indeed by agents who brought them in - everybody has a responsibility in this - who never should have been members of the market". When asked "So basically people were brought in under false pretences?" Mr Rowland replied "No. I answered exactly as I believe, false pretences may have occurred but I am talking about an atmosphere which existed that many people were encouraged 
into membership who in hindsight should never have become members." 
25. CONCLUSIONS
This trial is concerned with the Threshold Fraud Point being the issue whether Lloyd's made misrepresentations which it knew to be untrue and/or as to which it was reckless whether they were true or false, and whether such misrepresentations were communicated to the Names and if so, when?
For the reasons set out above I find for Lloyd's, and against the Names, on the Threshold Fraud Point. The costs of these proceedings will be subject to rigorous taxation.
Before parting with this judgment, I wish to make a number of further observations. I emphasise that what follows is subject to, (and not intended to detract from), all relevant decisions in the Lloyd's Litigation set out in Appendix 1 hereto.
It is, however, high time that the Lloyd's Litigation and related litigation here and overseas came to an end. The hostility between the Names and Lloyd's was evident throughout the trial. Following the management of the Lloyd's Litigation described in chapter 5, about 95 per cent of Names accepted the market settlement in September 1996. The subsequent litigation between some of the remaining 5 per cent and Lloyd's is referred to in Appendix 1.
I make the following general observations:-
(i) I refer to all the reforms etc described in this judgment implemented as the result of the Fisher Report, the Neill Report and the very considerable efforts of men and women of undoubted integrity, independence and standing. Despite all the reforms etc the catalogue of failings and incompetence in the 1980s by underwriters, managing agents, members' agents, and others (established by judgments of the court, by disciplinary hearings and other means referred to in chapter 24) is staggering (and brought disgrace on one of the City's great markets).
(ii) External Names (whether they accepted R&R or not) were the innocent victims of the failings and incompetence. Many Names have suffered enormously in financial and personal terms.
(iii) Many Names were/are unable to pursue perfectly valid claims against managing and members' agents because of deficiencies in relation to E&O cover. In some cases E&O cover was not obtained. In other cases E&O cover was insufficient. In other cases external Names were underwriting the E&O insurance of their own agent.
(iv) By way of example only, many Names had/have (subject to limitation) claims against their members' agents for negligent advice/portfolio selection advice (which they were not able to pursue by way of action groups because such claims were not susceptible to group actions), and yet there was/is no E&O cover to meet such claims.
(v) Individual portfolio selection claims were not assessed by the Kerr Panel. Lloyd's 'Comments on the Names' Response to Section U' paragraphs 12 and 13 explain the steps taken by Lloyd's to assist portfolio selection claimants through R&R. But these claims were by their nature particularly difficult to address.
(vi) Lloyd's answer to the allegations in this case (which I have accepted to the extent set out above) is that it was for the members' agent (not Lloyd's centrally) to advise prospective Names/Names as to the risks inherent in long-tail syndicates, along with all other material risks.
(vii) There are examples among the litigants in person (and I have no doubt there are similar examples among other Names) of individuals who were recruited (sometimes through intermediaries) in the mid to late 1980s, where it would appear strongly arguable that the advice/the portfolio selection advice was at best grossly negligent. (I refer in this context to the quotation from the judgment of Gatehouse J in Sword-Daniels in chapter 22 above, which I suspect would apply in broad terms to a significant number of other cases).
(viii) There is a distinction between those who can't afford to pay and those who can pay but refuse to do so.
(ix) Acceptors of R&R would no doubt complain if the non-acceptors were not treated equally (after making appropriate allowance for subsequent events e.g. costs orders in favour of Lloyd's). Further (although appropriate allowance must be made for post R&R developments), the non-acceptors would no doubt point to the way Lloyd's treated those who did accept R&R (or who have subsequently settled).
(x) In my opinion a fair overall solution (as between Lloyd's and those who did not accept R&R and have not settled since R&R) is unlikely to be achieved without independent assistance. Such an overall solution is in the interests of Lloyd's and the Names.
With these considerations in mind and having regard to the overriding objective, I suggest that there should be an independent review by an independent panel set up by Lloyd's (to be drawn from the legal profession with, if necessary, independent technical advice). I suggest that such independent Panel should (while respecting and applying all relevant decisions of the court to date) be asked to consider the individual cases of those Names who did not accept R&R (and who have not settled since R&R) and in particular:-
(a) whether the R&R offer to the individual Name was fair when compared with offers made to other Names in a similar position, i.e. was there equal treatment between Names in a similar position?
(b) whether any settlement offer made to the individual Name after the deadline for acceptance of R&R was fair, when compared with settlement offers made to other Names post R&R, i.e. was there equal treatment between Names in a similar position?
(c) what would be a fair settlement now as between Lloyd's and the individual Name, having regard to all the circumstances (including without limitation the need to ensure equal treatment between all Names and the result of this and other actions)?
I acknowledge that there are intractable problems where homes were charged to support letters of credit or other security provided by banks and other financial institutions. These should, I suggest, also be addressed so far as practicable by the independent Panel.
I conclude by expressing my gratitude to the respective teams of solicitors and counsel and to the litigants in person for the way in which this enormously difficult and complicated case has been conducted.