Names fight to claw back £20m losses

HUNDREDS of Lloyd's investors are about to launch legal action claiming that they were mis-sold policies designed to protect themselves against huge losses.

At least 400 investors in the insurance market, known as Names, are ready to sue for up to £20 million over 'stop-loss' policies - cover to cap the losses of individuals in the market.

Financial Mail understands that a formal claim is about to be launched against insurer Euclidian, which manages Integer, a mutual insurance group and the biggest underwriter of stop-loss policies at Lloyd's.

The threatened legal action comes at an awkward time for Euclidian, which is trying to raise more than £70 million of new investment.

Chairman Jamie MacGregor Truscott - a colourful figure on the London insurance scene and a selfstyled 'rogue' - left in mysterious circumstances earlier this year and is currently negotiating a payoff.

Managing director Jamie Corrigan Stuart, a close friend of MacGregor Truscott, is on holiday in France, but Euclidian's lawyers denied any suggestion of mis-selling and said they were happy to meet the action group.

The planned lawsuit follows the disclosure from Integer that investors can expect to recoup only 20p in the pound on their policies because losses at Lloyd's in 1999 and 2000 were far higher than expected.

Lloyd's picked up many claims against the directors of dotcom companies whose shares crashed when the bubble burst. And some of the huge aviation claims from September 11 actually fell in the 2000 year of accounts at Lloyd's. That means a typical Name underwriting about £1 million and buying insurance to cover losses above £100,000 is facing a combined shortfall on the stop-loss policy of about £200,000 for 1999 and 2000.

One member of the action group said: 'It really sticks in the craw to see the two Jamies living it up when we are having to accept such losses.'

David Phillips, who is leading the Stop Loss Recovery action group, said: 'We will be launching a formal claim against Euclidian shortly. Hundreds of angry Names are facing horrible Lloyd's losses and after the 80% scaling down by Integer are baying for blood.'

The group says investors were encouraged to buy stop-loss cover from Integer on the basis that it had strong reinsurance cover, largely through Centre Re, a subsidiary of the mighty Zurich Financial Services. They were told Integer had reinsurance protection equal to 500% of the premium in each year of cover.

What they claim they did not know was that Integer had bought a three-year policy. That meant if claims occurred in one year, the cover was 500% of premiums, but if there were claims in more than one year, cover was only 166%. As a result, Names have seen the amount they can claim slashed by 80%.

The action group is seeking a settlement through the industry's disputes mechanism, which will reduce legal fees. However, Euclidian's lawyers said the terms of the reinsurance were well-known when the policies were sold. It was 'simply not true' that scaling down had resulted from the three-year policy.