ALLEGATIONS of negligence and fraud are set to rock Lloyd's of London this week.

And they could lead to further legal actions and difficulties facing Lloyd's in its bid to reach a global settlement.

A paper by the Names Defence Association (NDA), containing statistical evidence from US attorneys' reports, accuses the Lloyd's Corporation of concealing from the market the true picture of spiralling claims and potential losses in the US during the 1970s and 1980s.

The NDA report says the market, including existing and new Names, was kept in the dark about the true nature of potential losses because of a “long history of massive, probably deliberate, and even possibly fraudulent under-reserving by Lloyd's of US long tail liabilities”. This also created a picture of false profits and prevented decimation of certain syndicates, it said.

But Lloyd's, which has not seen the papers, said that the NDA's argument was flawed because the statistics it used were too general.

NDA chair John Findley, who researched the data with solicitors Memery Crystal, said: “The conclusion is that Names who joined Lloyd's in the latter 1980s have been defrauded, but we do not know exactly who by.”

The claims relate to the syndicates' US long tail accounts and losses stemming in particular from asbestosis actions.

The NDA and Memery Crystal reached their conclusions from studying the Ultimate Loss Ratios in Lloyd's official 1994 publication Annual Settlement Statistics, and around 5,000 pages of reports by US law firms. These reports were produced over many years for US insurers, reinsurers and Lloyd's itself.

DJ Freeman partner David Tiplady, said: “If the [NDA] is right, that there is hard rather than circumstantial evidence, then it's very bad news for Lloyd's.” He said Lloyd's already faced US writs for damages by the States of Arizona and Illinois this month.

The NDA evidence could create a right of action for victims of fraud to sue. With no time bar for fraud allegations, it could also lead to new claims for old cases, said Tiplady.

Elborne Mitchell partner Andrew Pincott, acting for insurers, was sceptical about the evidence but said some reinsurers might now try to renege on their liabilities relating to asbestosis claims.