Lloyd’s – a brief history

Insurance underwriter Lloyd’s began in Edward Lloyd’s coffee house on the banks of the Thames.

While its exact start date is not known, newspaper reports dating from 1688 suggest that it was well-known in London business circles by that time.

The coffee house was used by ship’s captains, merchants and rich men to carry on their business of insuring ships and cargoes.

After 40 years, the underwriters moved to the Royal Exchange and elected a committee. Only members of Lloyd’s were allowed to accept insurance business.

In 1871, Lloyd’s was incorporated by an act of Parliament, 16 years before the first non-marine policy was underwritten.

The institution made its name in the US by underwriting the San Francisco earthquake claims in 1906.

In the ensuing years to 1988, Lloyd’s underwent three building moves, introduced insurance policies for both cars and aeroplanes, decided to admit firstly non-UK and Commonweath members and then, in 1969, women members.

But the year that Lloyd’s celebrated its tercentenary, the nightmare began. During the 1930s, Lloyd’s had reinsured policies taken out by asbestos manufacturers against claims brought by people suffering any kind of disease stemming from asbestos. The policies did not have a limit on the size of claims that could be brought and did not exclude any diseases.

At the time, of course, the discovery of asbestosis was decades away. By the end of the 1970s, asbestosis claims from workers suffering from the crippling lung disease were doubling each year.

At the same time, Lloyd’s was vastly increasing the number of “names” – private individuals who sign up to unlimited liability in return for a share in profits.

Many of these names were to lose everything in the years from 1988 to 1992 when Lloyd’s suffered a series of unprecedented catastrophic claims amounting to £7.9bn.

In 1982, Parliament gave Lloyd’s an exemption from law suits. It could only be held liable for damages if a claimant could prove “bad faith.”

It is “bad faith” that the group of names, led by Sir William Jaffray in an eponymous case against Lloyd’s, that is now awaiting judgment.

The claimants argue that Lloyd’s knew the probable extent of the claims it would have to pay out when it signed them up as names but “cooked the books” to show that the syndicates were showing a profit by moving reserves set aside for future asbestos claims.

In addition, Jaffray claimed that senior Lloyd’s members moved liability for the asbestos claims from their own syndicates to new syndicates with newly-recruited Names.