Steve Badger and I will have a friendly debate and presentation at the Lloyd’s Property Insurance Claims Group Conference on May 11. Our topic will be The 3 Sides to Every CAT Claim – Insurer Attorney, Policyholder Attorney and The TRUTH. Lloyd’s is very important to the international property insurance marketplace. I feel honored to speak before this professional audience at a long sold-out event.
This is not the first time Steve Badger and I have presented on property insurance topics. While the nature of our client representation shapes our views, I think many find it surprising how much we agree on certain issues. We also have an ability to state each other’s policyholder versus insurer viewpoints in a manner that is not offensive to audiences. Respectful and honest discussion is important to learn about the tough claims issues, which are often ambiguous regarding resolution.
Most Americans think of Lloyd’s as an insurance company. This is not correct. I discussed the legal significance of this 11 years ago in Lawsuits Against “Lloyd’s of London” are Often Wrongly “Named.” Lloyd’s is an insurance marketplace with significant administrative services and business management for those involved with running that international insurance marketplace.
Wikipedia describes Lloyd’s in the following manner:
Lloyd’s of London, generally known simply as Lloyd’s, is an insurance and reinsurance market located in London… Unlike most of its competitors… it is not an insurance company; rather, Lloyd’s is a corporate body governed by the Lloyd’s Act 1871 and subsequent Acts of Parliament. It operates as a partially-mutualised marketplace within which multiple financial backers, grouped in syndicates, come together to pool and spread risk. These underwriters, or ‘members’, are a collection of both corporations and private individuals, the latter being traditionally known as ‘Names.’
The business underwritten at Lloyd’s is predominantly general insurance and reinsurance, although a small number of syndicates write term life assurance. The market has its roots in marine insurance and was founded by Edward Lloyd at his coffee house on Tower Street in c. 1686. Today, it has a dedicated building on Lime Street within which business is transacted at each syndicate’s ‘box’ in the underwriting ‘Room’, with the insurance policy documentation being known traditionally as a ‘slip’.
The market’s motto is Fidentia, Latin for ‘confidence’, and it is closely associated with the Latin phrase uberrima fides, or ‘utmost good faith’, representing the relationship between underwriters and brokers.
On its informative website, Lloyd’s states:
Business at Lloyd’s is still conducted face-to-face, and the bustling underwriting room is central to the smooth running of the market.
The majority of business written at Lloyd’s is placed through brokers who facilitate the risk-transfer process between clients (policyholders) and underwriters.
Clients can discuss their risk needs with a broker, a coverholder or a service company. Specialist underwriters for each syndicate price, underwrite and handle any subsequent claims in relation to the risk.
The market structure encourages innovation, speed and better value, making it attractive to policyholders and participants alike. Immediate access to decision-makers means that answers on whether a risk can be placed are made quickly, enabling the broker to provide fast, good-value solutions.
The Lloyd’s market houses syndicates which offer an unrivalled concentration of specialist underwriting expertise and talent.
A Tulane Law Review article, Not Your Average Coffee Shop: Lloyd’s of London-A Twenty-First-Century Primer on the History, Structure, and Future of the Backbone of Marine Insurance, also noted the history of Lloyd’s:
One of the most important local objects in the commerce of this enterprising county and indeed of the globe itself, is Lloyd’s Coffee House, a name which is derived from the first person who kept it, and who little imagined that it would progressively acquire a celebrity as great in the annals of the commercial world, as that of any sovereign in the history of courts.
To seventeenth-century Londoners, the simple coffeehouse represented ‘the center of social life.’ It was a place where citizens could escape the puritanical and austere aspects of 1650s English society, and within a short time, the coffee shop phenomenon had ‘fastened itself on London.’ Accordingly, during this industrious period of the British Empire, vast amounts of commercial transactions began to take place within their modest confines, with business literally occurring around the coffee table. On the roster of official coffeehouses for the year of 1687 appeared one Edward Lloyd, who decided to open his coffeehouse close to St. Catherine’s Landing on Tower Street near the Thames River in downtown London. ‘Undoubtedly, Lloyd’s early clientele must have been largely composed of seafaring persons, including captains and ‘ships husbands’ who met there to transact their day-to-day business.’ Furthermore, the early Lloyd’s coffeehouse doubled as an auctioning block for the sale of seafaring vessels.’ Ultimately, because of the constant association of this distinctive class of businessmen and their trade at the coffee shop, Lloyd’s coffeehouse began to develop a growing reputation as a maritime commercial meeting place.
By 1710, Lloyd’s was considered the ‘chief commercial Saleroom of London,’ and by Edward Lloyd’s death in 1713, ‘his establishment could safely be described as the acknowledged headquarters of maritime affairs.’ However, there is no evidence that any significant amount of marine insurance underwriting occurred at Lloyd’s during this period. In fact, D.E.W Gibb, a prominent member of Lloyd’s, notes that ‘of the date when its permanent occupation, its predestined business of marine insurance, started we have no idea.’ What can be gleaned from historical accounts is that during the late seventeenth and early eighteenth century, groups of retired ship’s captains began associating at Lloyd’s and extending their expertise to the blossoming area of marine insurance…. Although many of these merchants were underwriting their own risks (or the risks of their friends sitting across the table), they were arguably the early prototype of the modem marine insurance underwriter, sans syndicate.
During Lloyd’s dramatic rise in stature, the volume of marine insurance gradually began to increase throughout Britain. So, too, did the underwriters, brokers, and insurance companies who attempted to gain a piece of the action. Although there were other establishments that accommodated marine underwriters, Lloyd’s specifically offered ‘the best available news service about the world’s shipping, messages from the Admiralty and from every British port, gossip brought by homeward bound skippers
. . . .
and reports of casualties at the moment when they first reached London.’ Accordingly, it is understandable that many underwriters, and now brokers, began gravitating to Lloyd’s during this period to conduct their marine insurance business.
From a speech, The Origins of London Marine Insurance, by Professor Adrian Leonard, which I have linked below as the Video of The Day, Professor Leonard provides a history of London marine insurance. He stated in part:
It occurs to me now that I have skated rather quickly over the story of Lloyd’s. It must begin with Edward Lloyd himself, who seems to have been a rather energetic entrepreneur. Not much is known about him, to be honest, considering he was so prolific. We do know he operated a coffee-house in Great Tower Street by at least the end of 1688, or 1689 according to modern dating. By 1692, to appeal to his customers involved in trade, he had launched the first version of his eponymous list, with the slightly awkward title Ships Arrived at, and Departed from several Ports of England, as I have Account of them in London, with a sub-section called An Account of what English Shipping, and Foreign Ships for England, I hear of in Foreign ports. The earliest extant copy of the publication yet discovered is number 257, dated 22 December 1696.
As I approach the May 11 conference in London, I will write more about Lloyd’s and the important role those working at and managing Lloyd’s play in the American property insurance market.
Thought For The Day
I don’t think Lloyd’s of London would insure this mouth.
—Kathie Lee Gifford
Video of The Day