Lloyd’s to sue Aon, Benfield over World Trade Center policy

Lloyd’s is on the verge of suing two of its largest brokers, Aon and Benfield, over the Central Fund reinsurance policy they negotiated with six insurers in 1999.

The policy, underwritten by Swiss Re, Employers Re, The St. Paul, Hannover Re, XL and Chubb, formed part of Lloyd’s chain of security. It provided for $505 million at the time of cover over a five-year period with an aggregate limit of $722 million.

Lloyd’s claimed recovery on the policy following the attacks on the World Trade Center, but the companies denied total coverage. In March 2005 a settlement agreement with the insurers through arbitration proceedings established $292.4 million as the total recovery amount. In accepting the settlement Lloyd’s said it “reserved the right to pursue others involved in the placement of the policy for the shortfall.”

Under the original terms of the policy Lloyd’s was to be reimbursed for members cash calls exceeding $177 million in any one year, up to $680 million with an upper limit of $885 million.

Following the Sept. 11 attacks Lloyd’s made several cash calls and eventually filed claims for reimbursement of $845 million. The insurers, led by Swiss Re, claimed they weren’t obligated to pay under the terms of the policy. By Lloyd’s estimates the eventual settlement agreement resulted in a shortfall of $400 million. The effect on the Central Fund was higher, however, reducing it by $531 million.

Lloyd’s said that since the settlement, it “has been considering its position in relation to the brokers who placed the insurance policy, Benfield and Aon.”

Lloyd’s media representative Louise Shield confirmed that “following discussions with the brokers Lloyd’s has decided to proceed with legal action.”

Lloyd’s General Counsel, Sean McGovern commented: “We are now actively pursuing this claim through the courts. This is not a decision that has been taken lightly and follows discussions with Aon and Benfield.”