On Sept. 21, 1992, Margaret Bailey returned home from some afternoon errands to find her husband, Russell, 64, dead in the front hall of the couple’s house in Burlington, Ont. He had committed suicide. “Please, don’t ask me how,” she said in an interview last week, fighting back tears. A successful sales consultant, Russell Bailey had been severely depressed over massive losses on the
$500,000 that the couple had committed to the Lloyd’s of London insurance market in
1986. At the time, given Lloyd’s profitable history, that hardly seemed like a huge risk. So the Baileys also accepted Lloyd’s requirement of unlimited personal liability for losses.
Then in 1991, Lloyd’s began reporting huge losses—and demanding cash from investors to cover them.
Margaret Bailey now owes more than $2 million. However, she refuses to pay, alleging that she and her husband were victims of widespread fraud at Lloyd’s in the 1980s.
Last week, in the first Lloyd’s-related case to go to trial in Canada, Bailey, 63, was in court in Toronto to observe the proceedings dealing with 18 other investors who face the same grim predicament. They are being sued by three banks— the Royal Bank of Canada, the Hongkong Bank of Canada and Citibank Canada—that provided them with letters of credit and are responsible to Lloyd’s for the investors’ losses. If the banks
win the precedent-setting case, Bailey says that she and other investors stand to lose all their assets, as well.
In total, there are 473 Canadian investors in Lloyd’s—officially known as Lloyd’s Names. The Baileys, and most of the other Canadian Names, were among more than 14,000 investors who joined Lloyd’s in the 1980s, almost doubling its membership to a peak of 32,433 in 1988. When Names join Lloyd’s, they pledge money to one or more of
hundreds of underwriting syndicates that issue policies in specified fields, such as shipping and aviation. But those who joined in the 1980s arrived at the wrong time. In 1991, Lloyd’s, which takes three years to tally up its results, reported a record loss of $1.2 billion for 1988. For the following three years, the losses totalled another $13 billion. And many experts predict that billions more are yet to come. In Canada, 214 Names who are mem-
‘No matter what happens, it won’t bring my husband back’
—MARGARET BAILEY, whose husband, a Uoyds Name, committed suicide in 1992
bers of the Hamilton-based Association of Canadian Names, an advocacy group, already owe more than $1 million each on average. Worldwide, thousands of Names now face bankruptcy, and Russell Bailey was one of 10 who committed suicide. Thousands have joined advocacy groups in Britain, North America and elsewhere.
Officially, Lloyd’s has blamed its losses on an unexpected deluge of accidents and natural disasters in the 1980s, including the crash of Pan Am Flight 103 in Lockerbie, Scotland, in 1988 and Hurricane Hugo in 1989, as well as an avalanche of U.S. asbestosis and pollution claims. But the advocacy groups have commenced legal actions in Britain and their home countries alleging that Lloyd’s officials knew in the early 1980s that massive losses stemming from asbestosis claims, in particular, were pending, but that they did not disclose that information. As well, the disgruntled Names allege that underwriters of the troubled syndicates aggressively recruited new members in the 1980s, mostly outside Britain, to try to cover those anticipated losses. Kenneth Lavery, a retired chartered accountant from Oakville, Ont., who has conducted extensive research into the asbestosis issue, said: “Tire minute I signed the form, I was bankrupt.”
The allegations of fraud have surfaced in testimony before Ontario Court Justice Robert Blair in the trial which began in Toronto on Sept. 19 and will likely conclude this week. But the issue that Blair must decide is a much narrower one. Like Margaret Bailey, the 18 Names who are being sued in the case all wrote letters to their banks in 1991, citing evidence of fraud on the part of Lloyd’s, and instructing the banks not to honor letters of credit issued to Lloyd’s at the time they became Names. However, lawyers for the three banks argue that the evidence that the Names provided was not clear and convincing enough for them to stop payment to Lloyd’s for losses, as they were obligated to do under the letters of credit. The banks’ lawyers also note that a 1990 inquiry by Lloyd’s council and investigations by regulators in Britain, as well as numerous court actions under way there, have not definitively proved the fraud allegations.
Still, four other major banks, the Canadian Imperial Bank of Commerce, the Bank of Nova Scotia, the Bank of Montreal and the Toronto-Dominion Bank, after examining similar evidence, honored requests from Names to stop payments. But more than 100 Names who dealt with those banks are still not off the hook. In July, 1993, a British court ruled that the banks had to honor the letters of credit. Last month, all four banks filed lawsuits saying that the Names are still liable for their debts. Those suits will likely go to trial next year.
In addition to long and costly legal battles, the Canadian Names say that they have had trouble combating the widespread perception that Lloyd’s members are extremely wealthy individuals who can easily cover their debts. Historically, that perception is grounded in fact. Lloyd’s began in a Imndon coffeehouse opened by Edward Lloyd in 1688, where shipowners and merchants met to arrange insurance. Over the centuries, the operation grew into one of the biggest and best-known insurance companies in the world. Even into the 1980s, Lloyd’s was reporting substantial profits. But many investors were attracted by the social status accorded Lloyd’s members, who included Prince Michael of Kent, a cousin of Queen Elizabeth II, and many other
members of the British nobility. However, in 1980 Lloyd’s lowered the price of that status—reducing its minimum personal net worth requirement to $185,000, before raising it again to $462,000 in 1990. Margaret Bailey says that, like many other Canadian Names, she and her husband backed their investment with the value of their four-bedroom house, which had a paid-off mortgage. Said Bailey: “We weren’t greedy. We were just middle-class people.”
Now the house, the marketing business that Margaret Bailey and her husband ran together and all of her other assets are at risk. She says that she subsists on Canada Pension
Plan payments plus a small insurance company annuity that Russell had purchased for her before his death. But she has been unable to pass on money Russell bequeathed to his four adult children by a previous marriage. And she expects to be tied up in court for years. Regardless of the outcome, for her and many Lloyd’s Names, the entire process is cruelly ironic because, even if Lloyd’s takes everything they own, it cannot recover all its losses. Nor can Margaret Bailey, who ruefully observes: “No matter what happens, it won’t bring my husband back.”
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