Lloyd's gets some good news in court rulings: policy holders, investors may benefit from decisions.

DOWNTOWN L.A. - Lloyd's of London has been prevailing recently at the appellate court level in some major lawsuits over environmental damage and other liabilities, providing a glimmer of hope for Lloyd's investors, who stand to lose their-assets in a reorganization plan, and for Lloyd's policy holders worried that the insurer's financial woes could leave them with no coverage.

Early this month, the 2nd District Court of Appeal in Los Angeles threw out a $106 million award judgment against Lloyd's of London and other insurers. The ruling reversed a 1993 jury trial decision from Los Angeles County Superior Court in the case of Amoco Chemical Co. vs. Certain Underwriters at Lloyd's of London. The award was believed to have represented the largest bad-faith punitive damage award in California history.

While Lloyd's lost a $250 million jury verdict in Houston last week, stemming from unpaid claims from the Exxon Valdez oil spill, it also prevailed recently in another California appeals court in a case that could have cost Lloyd's as much as $1 billion, said Rick Seabolt, an attorney with Hancock, Rothert & Bunshoft representing Lloyds.

In that case, Aerojet-General Corp., formerly of Azusa, had sued Lloyd's, seeking to have the insurer pay to clean up toxic contamination to soil and groundwater at Aerojet's massive Superfund site near Sacramento.

Hancock, Rothert & Bunshoft, with offices in San Francisco, Los Angeles, Tahoe City and London, represents Lloyd's in a number of environmental claim cases, including Aerojet, Amoco and cases brought by FMC Corp., a food products company facing difficulties over chemical waste dumped at various sites.

"This is no small part of why Lloyd's is facing problems - because Fortune 500 companies with Superfund sites expect their insurers to pay for the clean-up," said Seabolt. "This pollution stuff is a large part of their problem."

Names watch news

There are several other such cases in various courts that remain to be decided, noted Hancock, Rothert attorney Deborah Pitts, who represented Lloyd's in the Amoco appeal. The outcome of these cases could affect how much Lloyd's investor/underwriters, known as "names," are responsible to pay.

Lloyd's is in the midst of a reorganization in London. It is attempting to win approval from names worldwide for the establishment of a new company, Equitas, which would be responsible for pre-1993 claims and would be funded by names, with a contribution from Lloyd's. Lloyd's faces a "domestic solvency test" Aug. 31 in England and hopes to have its plan in place before that date.

State insurance regulators across the U.S., including in California, have sued Lloyd's claiming that names here were defrauded because Lloyd's withheld information from them about the risky nature of the policies they were underwriting.

But the California Insurance Department has argued that bailing out the names could mean Lloyd's won't have the ability to pay legitimate claims and could force smaller insurance companies, that reinsure with Lloyd's, into insolvency.

Lloyd's has 15 percent of the "surplus lines" market in the U.S., which includes unusual, catastrophic coverage provided to such entities as the Los Angeles International Airport and the Metropolitan Transportation Authority. The MTA is facing more than $1 billion in claims related to subway construction damage along Hollywood Boulevard alone.

Early this month, the Association of Lloyd's State Chairmen, which represents 1,200 U.S. names, advised its members not to sign a Lloyd's "conditional agreement" affirming the Equitas plan and waiving the right to sue the insurer in the U.S.

Impact downplayed

Also, the North American Securities Administrators Associations released a study stating that a lien on Lloyd's bank funds, which was sought in the California Department of Corporations case against Lloyd's to protect the interest of names, would not prevent Lloyd's from paying valid claims to policyholders. The NASAA study also said Lloyd's has such a small percentage of the U.S. insurance market that its downfall would have little impact here.

Last week, the chairman of the Lloyd's of London Task Force for the NASAA told U.S. investors that the group does not approve of Lloyd's current settlement/reorganization plan and will not authorize the Equitas fund.

However, if Lloyd's continues to prevail in appeals courts, it could reduce the amount of claims that names and/or Equitas would have to pay.

"That (Amoco case) is one less potential liability. Of course, it will be sent back to the trial court," noted Jon Kaufman, a public relations spokesman with Solem & Associates who represents Lloyd's. "It's just one item. There are many. There are a whole lot of cases in various stages."

Amoco sued its insurers in 1991 for failing to pay its legal bills in lawsuits over allegedly defective fiberglass pipes that Amoco had sold to municipal water and sewer districts in the mid-1980s. In 1993, a Los Angeles jury awarded Amoco $35 million in compensatory damages and $386 million in punitive damages. Judge Ernest Hiroshige reduced the punitive damages to $71 million, for a total award of $106 million.

The appeals court found that Hiroshige had misled the jury during instructions, leading the jury to believe that leaks in the pipes were "accidental" and thus should have been covered.

Pitts said she is confident the insurer will prevail in a new trial.