Benfield and Aon are targeted by Lloyd's over Central Fund.
The long-running dispute between Lloyd's and a group of brokers over a policy covering its Central Fund took a new twist in February, with Lloyd's announcing it was suing Benfield and Aon for £325m. The action, which is based on a claim made following the 9/11 terrorist attacks in 2001, will be “vigorously” contested by both brokers.
Lloyd's took the decision to initiate formal legal proceedings against two of its largest brokers when it was left out of pocket last year. It had been trying to get a group of six insurers and reinsurers to pay up to £500m in claims on a policy Lloyd's bought, through Aon and Benfield, to protect its central fund of assets in 1999.
The policy was underwritten by Swiss Re, Employers Re, The St Paul, Hannover Re, XL and Chubb, and formed part of Lloyd's chain of security, providing for £350m of cover over a five-year period with an aggregate limit of £500m. Lloyd's claimed recovery on the policy following the attacks on the World Trade Center, but the companies denied total coverage.
Under the original terms of the policy, Lloyd's was to be reimbursed for members' cash calls exceeding £100m in any one year, up to £385m with an upper limit of £500m. After 9/11, Lloyd's made several cash calls and eventually filed claims for reimbursement of £477m. The insurers, led by Swiss Re, claimed they weren't obligated to pay under the terms of the policy.
In March 2005, a settlement agreement with the insurers through arbitration proceedings established £152m as the total recovery amount. By Lloyd's estimates the settlement agreement resulted in a shortfall of £226m. The effect on the Central Fund was higher, however, reducing it by £276m.
In accepting the settlement, Lloyd's made clear that it “reserved the right to pursue others involved in the placement of the policy for the shortfall”. Lloyd's General Counsel, Sean McGovern, said, “We are now actively pursuing this claim through the courts. This is not a decision that has been taken lightly and follows discussions with Aon and Benfield.” This action will not be a quick affair and it is likely that the case will take up to 18 months to just get to court, a Lloyd's spokeswoman said.