The 'final' settlement between Lloyd's and its Names is anything but when it comes to estates, says Christine Malia
Last week's news of the Lloyd's settlement should give personal representatives more hope of paying out their deceased's estate. But although the settlement describes itself as “final”, the matter is by no means over for personal representatives.
They should not act in haste lest they themselves become liable. They should retain funds and await the outcome of a possible test case before paying out to beneficiaries.
The three simple lines in the Lloyd's press release, which proclaim that a settlement had been reached with the Lloyd's Names, betrayed a mountain of legal and financial problems that still remain to be settled. For personal representatives hoping to distribute estate funds that were tied up in the Lloyd's funds, the settlement is by no means the end of the matter.
This firm is advising executors of estates dating back to 1984 which still cannot finalise the distribution of assets. Despite holding an estate protection plan, the executors may still become liable and so the decision has been made to await the outcome of further investigations and a potential test case.
An individual's investment in Lloyd's formed part of a much larger underwriting of a specific area of insurance, such as marine or aviation.
An underwriting account lasts for one year, but is usually not closed for a further two years, and the results of the investment are not known until two years after that. One client has an estate that hasn't been closed for one year because claims cannot be quantified and reinsurance is not a possibility.
Lloyd's investors were hit badly with the collapse of the Lloyd's insurance market, which came after a series of disasters – such as the Exxon Valdez oil spillage, the Piper Alpha explosion, the San Francisco earthquake and higher than usual storm and hurricane damage – combined with the emergence of a torrent of US environmental claims.
Because liability continues after death, the ongoing commitment to massive insurance cover has caused great financial difficulty for estates of deceased Names and for their beneficiaries.
The executors have now
received the 250-page settlement document, along with a 24-page guideline to completing the accompanying forms.
The settlement offered, and accepted by 91 per cent of investors, seeks to bring to an end the litigation against Lloyd's. It “finalises” the financial position of Names by capping their liability, and it allows for the reinsurance of 1992 and prior account years of liabilities into Equitas, the company formed for this purpose. Names pay a premium as part of the settlement offer.
By accepting the settlement offer, there is no guarantee that liabilities will be met, although it is thought to be more likely now than in recent years. Hence, Lloyd's use of the word “finality” throughout its settlement offer. But no one can be sure if this is the final chapter.
Many deceased Names took out insurance to cover liabilities when they died. These policies – known as estate protection plans (EPPs) – are also Lloyd's policies and executors were told by the underwriters that they could pay out the estate's monies on the strength of the EPP meeting any Lloyd's liabilities. But some executors were concerned about their own position as regards ongoing
Are they in any better position with Equitas? If Equitas fails, the executors will be left in a potentially disastrous financial position themselves if they have paid out the estate's funds and there are further liabilities. For this reason, executors are advised to retain the estate's money for the time being.
But there is light at the end of the tunnel. Personal representatives can make an approach to the court for an order, under Order 85 Rule 2 of the Rules of the Supreme Court, for a direction to determine whether personal representatives can distribute the remaining estate. Such an order would protect the personal representative from liability.
At the moment, the London Central and City of London branches of the Society of Trust and Estates Practitioners are looking to bring a possible test case, evidence that the difficulties facing personal representatives are widespread.
The outcome of this should be awaited by all solicitors advising personal representatives of an estate involving Lloyd's investments, before they start to distribute any further funds to beneficiaries.
Christine Malia is an assistant solicitor in the trust and probate department at Irwin Mitchell.