Lloyd's dissidents to sue Treasury

SIX dissident Lloyd's investors have filed a £7m claim for damages against the Treasury, alleging that the Government failed to regulate the insurance market properly. The lawsuit has come to light just days after the European Commission began legal action against the Government, claiming that it had not applied an EC directive on audit arrangements at Lloyd's.

The rules call for the Government to ensure that operators have enough money to cover their liabilities. But Financial Mail revealed last year that Lloyd's auditors had admitted that it was impossible to ensure that solvency rules demanded under European law were applied in the insurance market.

Letters from one firm of auditors indicated that Government regulation of Lloyd's had been compromised. A second set of correspondence from a group of syndicate auditors in 1982 talked of 'the impossibility of determining the liability in respect of asbestosis'.

Lloyd's investor John Pascoe is seeking to avoid picking up his share of losses on the grounds that the Government has broken European law. He confirmed that he has filed a £7m claim on behalf of himself and five other investors, known as Names.

Pascoe has been pressing the Commission for years to take action against the Government, arguing that if auditors could not calculate accurately whether the market was solvent, that was in breach of EC directives.

Pascoe faces bankruptcy if he is forced to pay all of his Lloyd's losses. He said: 'There has been a cover-up all the way along. I think it's very clear that lots of people knew about this lawbreaking, but had hoped to bulldoze us into the oblivion of bankruptcy so we would lose our rights to take action.'

Regulation of Lloyd's is now handled by the Financial Services Authority, but it was under the jurisdiction of the Department of Trade and Industry and subsequently the Treasury.

The European Commission has given the Government two months to provide evidence that Lloyd's has been properly regulated or it will face a humiliating lawsuit in the European Court of Justice.

If the Government lost the case, it could face thousands of claims for damages from Lloyd's investors who signed up to an £8 billion rescue package for the market in the early Nineties.

It is not clear, however, whether Names who signed away their rights to legal action against Lloyd's as part of that deal could seek redress against the Government. Hundreds of other Names who did not take part in that deal may also try to recoup their Lloyd's losses.

Government officials maintain that there was no failure to apply the EC directive.