Sunday, March 14, 2004

Lloyd's tempest swamps 18 here


It was cocktails in the 1980s, lawsuits today

By James McNair
The Cincinnati Enquirer

Over cocktails and hors d'oeuvres in the dining hall of the Cincinnati Country Club in Hyde Park, where plate-glass windows offer a picturesque view of rolling fairways, scores of the region's most moneyed citizens gathered to hear the business deal of a lifetime.

An annual event in the late 1980s, the occasion was hosted by underwriters of Lloyd's of London, the 316-year-old institution that serves as the backbone of the world insurance market. Speakers gave financial updates for those who already belonged to Lloyd's - people who underwrote Lloyd's policies and were referred to as "names." For the rest, it was a chance to join the enterprise that had built fortunes for generations of British nobility.

Prospects were forewarned that their liability would have no limit, well beyond their minimum net worth showing of $250,000, but they took comfort in assurances that no one had ever lost money as a Lloyd's name. After all, they no doubt reasoned, this was a society whose members included Edward Heath, the former British prime minister; Camilla Parker-Bowles, the mistress of Prince Charles; and American stock brokerage owner Charles Schwab.

Looking forward to a lucrative ride, close to 100 Cincinnatians boarded what turned out to be the Titanic of business schemes gone bad. At least 18 of them are still shackled to the ship, on the wrong end of $9.1 million in civil judgments returned in Lloyd's favor.

Many Americans, about 2,600 in all, joined Lloyd's just in time to bankroll one of the biggest financial calamities of all time. In 1989 alone, Lloyd's underwriters absorbed liability for the Exxon Valdez grounding, Hurricane Hugo, the San Francisco earthquake and a Phillips Petroleum plant explosion in Texas. Meanwhile, Lloyd's officials played down the prime source of its troubles - asbestos claims, which have cost insurers hundreds of billions of dollars since 1970.

Lloyd's itself lost about $20 billion from 1988 through 2000. And because those losses were footed by Lloyd's members who undertook risks without a cap on their exposure, the effect on names was devastating. U.S. members lost an average of $700,000 apiece, said Jeff Peterson, president of the American Names Association in Rancho Santa Fe, Calif. About 125 went bankrupt, he said, while three committed suicide.

Of the 34,000 people who owed money as a Lloyd's name, 95 percent agreed to pay settlements in the 1990s while the rest chose to fight Lloyd's in court. Their best chance to hold Lloyd's accountable for their woes - a civil fraud trial in London - was dashed in 2001 when members failed to prove that Lloyd's actions violated England's fraud statutes.

Lloyd's has been in collection mode with the holdouts ever since. State by state, Lloyd's has filed civil judgments totaling $155 million against about 350 Americans who refused to settle, or about $433,000 each. Last week and in January, those papers came to roost in the federal courthouse in Cincinnati. They allege that a group of prominent residents owes a total of $9.4 million. A Lloyd's spokeswoman said the defendants knowingly accepted unlimited liability for the policies they underwrote. She said they agreed that any disputes would be settled in English courts.

"Some names, including some in Ohio, litigated their disputes with Lloyd's to conclusion in the English courts, but then declined to pay," said Lloyd's spokeswoman Melanie Batley in an e-mail from London. "Proceedings to enforce the judgments against those names have accordingly been instituted."

Eighteen Greater Cincinnati residents are among the holdouts - and are named in collection cases. Lloyd's is seeking roughly $1.4 million from Kenwood architect Thomas Tilsley; $878,227 from commercial developer Glenn Jeffers; $779,889 from Judith Shell, the widow of late real estate agency owner West Shell; $681,837 from businessman Andrew Hauck III; $576,617 from Oliver Birckhead, retired CEO of the former Central Trust Co.; $478,476 from Amberley Village doctor Glenn Pfister; and $465,705 from tire retailer Robert Sumerel.

The sums do not include 8 percent interest since 1998. Lesser amounts are being sought from Snowden Armstrong, Alfred Berger Jr., Stephen Dohme, Ernest Eynon, Barth Hoogstraten, Harry Roach, Durwood Rorie, David Westerkamp, William Whitehouse III and the late John Fleck. Lloyd's only collection effort in Northern Kentucky alleges that retired West Shell president Eugene Middlekamp owes $982,386, including interest.

The Enquirer attempted to reach all 18 for comment. All declined to comment, did not return phone calls or could not be reached. Several referred questions to their lawyer, John Campbell.

"We're going to defend these things to the fullest extent that our clients and the courts will allow," said Campbell, of the Cincinnati law firm Kohnen & Patton.

Don't speak of it

Some subjects are best left out of cocktail party conversations in Cincinnati. Among them: the Home State Savings & Loan failure, the Baldwin-United collapse and the Lloyd's fiasco. One former name in Cincinnati recalled how euphoria overcame reason at Lloyd's recruiting fetes.

"They thought they were going to get rich like their other friends were going to," he said, asking not to be identified. "It was a fool's paradise."

As part of the enrollment process, prospective names traveled to London's financial district for two days of interviews inside Lloyd's Matrix-like metal-and-glass office tower. The interior, adorned with antiques and mirrors, left one visitor with the impression that he had been in the Palace of Versailles.

For many in Lloyd's recruiting classes of the late '80s, it was the last time they would have a reverential view of Lloyd's. In 1991, the specter of asbestos payouts finally manifested itself in Lloyd's financial results. The year-end report for 1988 showed a loss of 510 millionpounds. The bulk of the money would have to come from Lloyd's 27,000 names.

Lloyd's went on to post losses of 1.9 billion pounds for 1989 and 2.3 billion pounds for 1990. Names resigned in bunches but couldn't shed the wealth-draining obligation to honor policies they had underwritten. Lloyd's erupted into an inferno of lawsuits, governmental inquiries and police investigations, all centering on what Lloyd's knew - and withheld - about the asbestos problem. U.S. members, reportedly lured into some of the most exposed syndicates, took a disproportionate hit.

As the chances of being rescued by the Securities and Exchange Commission, Scotland Yard and the British Parliament diminished, Lloyd's names lost the will and resources to press the fight. Many U.S. names sued and won undisclosed settlements from Lloyd's business partners in the United States. One group of 28 Cincinnati names, led by lawyer Stan Chesley, worked out such a deal with Lloyd's U.S. law firm in Washington.

Peterson, whose American Names Association represents about 200 Americans, including the 18 in Cincinnati, said he expects "at least five or six" of the Cincinnati group to declare bankruptcy, which would extinguish the debt. Indeed, one of the 18, who didn't want his name published, told The Enquirer that he will either have to file bankruptcy or hide his remaining assets. Lloyd's, he said, has already cost him "a couple hundred thousand dollars" in underwriting payouts.

"This kind of fraud has been compared to being raped and being infected with financial AIDS," Peterson said. "They can't get away unless they die or go bankrupt."

Was it deception?

Batley, of Lloyd's, said the members acknowledged the risks of becoming a Lloyd's underwriter with unlimited personal liability. "During some time periods, names have reaped financial gains, and during other times names have incurred losses," Batley said.

But Peterson, whose group maintains a pugnacious Web site called www.truthaboutlloyds.com, says Lloyd's used deception in recruiting new members who had no way of knowing they were joining syndicates that had millions of dollars in incurred, but unreported asbestos and pollution liabilities.

"Lloyd's tries to portray these people as (angry) millionaires, and that just isn't it," he said. "I represent dozens and dozens of people who shouldn't have joined Lloyd's. They put up their homes to secure the letters of credit, and now they're living on Social Security."

E-mail jmcnair@enquirer.com.




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