State of Utah v. Lloyd's of London (Affidavit of Roger Bradley), CASE NO. 960902920CV (1996)
kuacou
Assistant Attorney General
JAN GRAHAM #1231
Utah Attorney General
160 East 300 South, 5th Floor
Salt Lake City, UT 84114
Telephone: (801) 366-0310
Facsimile: (801) 366-0315
Attorneys for Plaintiff
IN THE THIRD JUDICIAL DISTRICT COURT, IN AND FOR
SALT LAKE COUNTY, STATE OF UTAH
THE STATE OF UTAH, Division of Securities of the Department of
Commerce,
Plaintiff,
vs.
LLOYD'S, a.k.a LLOYD'S OF LONDON, a
corporation, a.k a. COUNCIL OF LLOYD'S,
a.k.a. COMMITTEE OF LLOYD'S, a.k.a THE
SOCIETY OF LLOYD'S, a.k.a THE
CORPORATION OF LLOYD'S, and its
agents and representatives;
Defendant.
CASE NO. 960902920CV
AFFIDAVIT OF ROGER WALTER SLEIGH BRADLEY
JUDGE: Glenn K. Iwasaki
I, ROGER WALTER SLEIGH BRADLEY, make oath and say as follows:
A. Background
I, Roger Walter Sleigh Bradley of 45 Hillcrest Road, Purley, Surrey
CR8 2JF am a retired Lloyd's Underwriter with a background of 41 years
of my working life spent in the insurance industry, 26 of which were
spent at Lloyd's.
I first went to Lloyd's in 1957 when I joined Lloyd's as the third man
in the E H W Hayward box. In October 1962, I was appointed Marine
Underwriter with NEMGIA Limited. Later, in October 1967, I was invited
by Peter Green to join him as an underwriter with Janson Green
Limited.
I stayed at Janson Green until October 1977 when I was invited by Mr.
Bryan P. Barrie to be his equal partner and active joint underwriter
in Bryan P. Barrie Underwriting Agencies Limited. In January 1980, I
continued being the active underwriter on syndicate 921 R W S Bradley
and others. In November 1986 I retired from active underwriting. I
retired as a Director of Bradley Gascoine Underwriting Agencies
Limited in December 1988.
B. The Asbestos Problem
I. Conversation with Ralph Rokeby-Johnson
During my time at Lloyd's, I began to become aware of the potential
dangers to the Lloyd's market posed by asbestos liability claims in
the United States. Whilst I had been aware from the late 1960s that
claims were being made in the United States in respect of asbestos
risks, it was not until 1973 that I became aware in general terms of
the possible scale of such claims and the potentially devastating
effect which they could have on the Lloyd's market, where many of
these risks were insured and reinsured.
On 4th October 1973, I played in the Lloyd's Golf Club Autumn meeting
at Walton Heath. My opponent was Ralph Rokeby-Johnson, a leading Non-
Marine Underwriter with the Sturge Agency. Ralph Rokeby-Johnson asked
me during the course of the match the following question: "Has Green
got all his reinsurance for asbestosis in place and has he got enough
of it? Has he got it placed offshore?"
The Green referred to was of course Peter Green for whose Syndicate,
Janson Green, I had been underwriting for 6 years at the time. I was
surprised by this question and gave a fairly non-committal response
which was that Peter Green seemed relaxed. Later on, Ralph Rokeby-
Johnson asked me if he had upset me. I said that he had not and asked
him to tell me more.
It was at this point that Ralph Rokeby-Johnson spoke to me in the
terms which I shall never forget which were as follows: "What I can
tell you, my friend, is that asbestosis is going to change the wealth
of nations. Lloyd's will probably be bankrupted in the final chapter
unless something happens to intervene, i.e. the Government via the
Bank of England or legal duress on the Americans, but it will happen
and we cannot stop it."
Ralph Rokeby-Johnson spoke of possible claims of $66 billion by 1990
and $120 billion by the year 2000. These figures have now been
confirmed as being the same figures as those in the Selikoff Report of
1964, the first of two reports by Dr. Irving Selikoff of the Mount
Sinai School of Medicine in New York into the problems caused by
exposure to asbestos. Clearly, Ralph Rokeby-Johnson was well aware of
this report.
I, however, like the vast majority of Underwriters, had not and still
have not seen that Report. After the golf match at Walton Heath, at
drinks, I approached Ralph Rokeby-Johnson because I was now intrigued
with the situation he had revealed. Essentially, I asked him: "How do
you know your estimates are on targets?" Ralph Rokeby-Johnson was
irritated at this: "I don't know; it is only a judgment. Six billion
dollars or $66 billion, it all depends on asbestos in buildings and
how many time bombs there are". "What are time bombs?" I asked.
With a pained expression, because of my background as a "mariner"
underwriter floundering in "non-mariner" country, he explained: "Time
bombs are victims walking, sleeping, talking, who are living but have
lung cancer. When they die, as they will do up to the year A.D. 2000,
the lawyers are going to have a field day. We don't know how many are
affected. They don't know yet. So pick a figure, but it won't be far
off, I have told you".
What Ralph Rokeby-Johnson knew was that the policies written by
Lloyd's in respect of American liability risks since the 1950s were
largely unlimited i.e. they had no aggregate exposure limits and
apparently contained no exclusion clauses in respect of asbestos
related diseases. A huge number of claims were being made in the US
courts against asbestos manufacturers under their public liability
policies and these claims would sooner or later burst through onto the
Lloyd's market.
I spoke to Bill Maitland, fellow Underwriter at Janson Green, the next
day about my conversation with Ralph Rokeby-Johnson on the golf
course. He disappeared for a few hours and then came back. He told me
that if I were asked about asbestos, I should refer the matter to
Peter Green, who later became Deputy Chairman of Lloyd's and
subsequently Chairman. He had clearly spoken to Peter Green and told
me not to worry and that the situation was being closely watched. It
was 1975 and after when claims advised by Sedgwicks in relation to a
US company called Bell Asbestos started to hit the London Market. Even
then, however, the vast majority of the market were unaware of the
size of the asbestos problem.
II.
Visit to New York
In September 1979 I was fortunate to be selected as one of twelve
invitees, underwriters, brokers and Corporation of Lloyd's staff, to
visit New York insurance market under the auspices of the Keith Brown
Foundation Fund. It was a memorable visit which I found to be of a
great personal benefit in understanding the operation of the interplay
between the marine and non-marine market. This was also a significant
period for Lloyd's in general and the asbestos problem in particular.
In 1978 Lloyd's had decided to relocate service departments to Gun
Wharf at Chatham and to redevelop the 1928 building. Clearly the scene
was being set for a massive increase in the number of Names and an
increased volume of business to be written, the reason for which I now
believe to be, at least in part, the knowledge by those at the very
top of the Lloyd's hierarchy that the scale of the asbestos problem
was such that it could affect the market unless new Names were drafted
in to help "mop up" the losses. Also in 1978, there loomed from
America a potential disaster scenario of asbestos liability springing
from various US Courts where cases were being filed and judgments
given. In particular, judgment was given in the case of INA -v- Forty-
Eight Insulators Inc. which held that liability in relation to
asbestos risks arises on an exposure basis. In the same year, the
cases of Eagle Picher Inc -v - Liberty Mutual Insurance Co. which
eventually held in favor of the manifestation theory and Keene
Corporation -v- INA which decided that the insured could collect on
both an exposure and manifestation basis i.e. the "tripple trigger"
were filed.
The latter judgment could cause Lloyd's insolvency by itself. In April
1978, an article on asbestos exposure by J. A. Califano jnr, Secretary
of Health, Education and Welfare of the United States reported that
67,000 people each year would die from exposure to asbestos products
during the rest of the 20th Century. The article stated that it was
known that between 8,000,000 and 11,000,000 workers had been exposed
to asbestos in the United States since the beginning of World War II
and of this group 4.5M had worked with asbestos-contained insulation
materials in shipyards.
Most of the shipyard workers had been exposed to asbestos and it was
estimated by the United States Government that one third of all those
heavily exposed to asbestos had died or were likely to die of asbestos-
related diseases. The US Government also instructed the US Surgeon-
General to send an advisory letter to all 400,000 physicians in the
USA describing the health risk posed by asbestos.
This report was, I believe, picked up by LeBoeuf Lamb Leiby & MacRae,
Lloyd's US attorneys, and passed to Lloyd's via the Lloyd's
Underwriters Non-Marine Association, a powerful market association
whose members included the major Non-Marine Underwriters of the time
It was never published. Bearing in mind that Doctor Irving Selikoff of
the Mount Sinai School of Medicine in New York, an expert on the
subject of asbestos, in 1964 stated that asbestos-induced diseases and
cancers took upwards of 40 years to manifest themselves, the outlook
for Lloyd's in 1978 was grim. At the same time, many adverse reports
on asbestos liability claims produced in the United States were
surfacing but being suppressed from market consumption.
Quite clearly underwriters were realising their reserves both offshore
and onshore to pass solvency on their 1979 accounts. In reality, their
reserves were gone and the Central Guarantee Fund was almost naked. It
was against this background that I left for New York in September
1979. I was well aware of the depressing underwriting scenario evident
to all but I wanted to find out for myself the possible ravages of
asbestos which I recognised as "packaged fog" and needed to search for
answers to my doubts and ignorance. I had resigned from Janson Green
in 1977 and, suspecting that they, one day, were going to have
problems with latent disease and pollution claims, I wanted to make
sure that any Non-Marine liability business that I wrote for the
relatively new Bryan Barrie syndicates, namely 901 and 921 were as
free as possible from such unwelcome claims.
Ralph Rokeby-Johnson's asbestos warning of 4th October 1973 to me, at
Walton Heath Golf Club, was still fresh in my memory. It was at a
committee meeting of the Keith Brown Foundation, when I and the other
committee members were discussing the impending visit to New York that
it was decided that each of the 12 visitors sent to New York would
choose a subject before leaving and write a report on it on return to
London. I remember that Alan Parry was in the Chair and others present
were Charles Skey and Stephen Merrett together with Phil Johnson from
the Corporation staff as Secretary. It was agreed that I should be in
the party to go. When I was asked what the subject of my research was
to be, I stated that my subject should really be Nuclear Insurance but
that what I should prefer to do would be to delve into the asbestos
scenario and possibly the pollution aspect as well. The reaction from
Charles Skey, a senior underwriter and Lloyd's Committee member, was
electric: "Oh for heavens sake don't do that please", he said. "We
know all about asbestos. Whatever you do don't go stirring up the
Americans on that one. Leave it well alone".
I was surprised at this outburst and replied, "OK, I'll make it
Nuclear Insurance". "That's better", said Charles Skey. After the
meeting I remarked to Alan Parry, "My gosh, I certainly upset Charles
didn't I?" Alan laughed and replied that it was after all a sensitive
issue. However my mind was made up. Asbestos it was to be, even if
softly softly. A few days later before setting out, Peter Green gave
us a small sending off party, to wish us God speed, on the second
floor. He came up to me and said he was glad I was going, no doubt
impishly, bearing in mind that in all the ten years that I had worked
for him in the Box he had never sent me once to the USA although I had
been handling US business every day. I mentioned to him that I was
going to do a report on Nuclear Insurance. He smiled and said nothing
and then I said I was going to delve very quietly into the asbestos
scenario. He paused for thought, studied me and remarked that that
would be "interesting no doubt" and then moved down the line of us.
During my visit, we were all given a choice to spend a day with anyone
we liked. I chose to spend the day at Citibank. Tom Hitchcock, the
Manager, introduced me to Philippe A Humbert, Vice President, and
Nicholas A Jones of the Senior Accountant's office. I spent a
fascinating day with them, discussing US banking for Lloyd's.
After meeting Tom Hitchcock in the offices of Citibank I had dinner
with him. We discussed the level of claims that were likely to be
received by Lloyd's in view of asbestos liabilities. Hitchcock knew,
and I knew, that in the future very substantial claims indeed would be
received by Lloyd's. I had been speaking to insurance underwriters and
brokers earlier in the week. They told me that asbestos claims were
likely to be of such a magnitude that the claims would be horrific. We
had no idea of the cost of claims to Lloyd's. We were not able to
calculate the amount at that stage. The number of claims seemed to be
growing, was very large and appeared to be without limit. It was quite
impossible at that stage to forecast the number of claims that would
be made in respect of asbestos damage. The amount of each claim had
been calculated within a certain range.
The crucial question was the number of claims that would be made that
would be fed through to the Lloyd's market. This was not known to us.
We were speaking in general terms, Underwriter to Banker. We were both
concerned in relation to the number and amount of claims that would be
received. Hitchcock said to me that, if every claim known to be out
there as a liability for Lloyd's were to be delivered and became
payable the next day, there simply would not be sufficient money in
the Lloyd's American Trust Fund ("LATF") to meet all liabilities.
Hitchcock said, and I accepted and agreed, that the claims that had
been incurred, but were not reported or presented to Lloyd's would
inevitably be received over a period of time. It was simply a question
of time. Hitchcock said that he was aware that there were insufficient
funds to meet all claims in total on one day if presented together.
That would not, of course, happen in the real world. Hitchcock
therefore suggested and I agreed with him that the only way out of the
crisis for Lloyd's would be for Lloyd's to try to increase its capital
base by recruiting more Names.
We were after all getting a new and much larger Lloyd's and therefore
needed more Names to justify and pay for it. We attempted to work some
figures out, on the back of a napkin. We knew that there were
approximately 17,300 Names at Lloyd's in 1979 and that did not appear
to be anywhere near enough to provide capital sufficient to meet the
asbestos claims. We tried to work out the sort of capital requirement
that Lloyd's should aim to achieve in coming years. We did some
calculations based on the average line that a new Name would write and
the amount of deposit that would have to be made. At the time, there
was no minimum liability per Name but the maximum liability that a
Name could take by way of premium income was ú350,000. The average
would be somewhere in between. At that time, it was necessary to
deposit one fifth of the premium income limit written in any one year
with Lloyd's. It was the deposits made in respect of writings that
would provide capital to Lloyd's, or even the doubling up of existing
premium levels of members of Lloyd's to increase underwriting
capacity.
We also thought about the amount of money deposited in the LATF. This
fund comprised cash in US and Canadian dollars and some investments,
in aggregate of about $4 billion. The proportion of the LATF in the US
$ was, I believe, some $2.93 billion. This seemed to Hitchcock to be
woefully inadequate. We were talking in terms of possibly trebling the
amount deposited in LATF to a figure of US $12 billion, or even more
if possible. We tried to calculate the number of Names that would have
to be recruited to Lloyd's to make sufficient deposits to provide the
additional capital needed to increase the deposit in the LATF. We did
not calculate precisely the number of Names that Lloyd's should seek
to recruit. Nonetheless, it was plain to Hitchcock and to me that
Lloyd's would have to look for many many more Names. We talked in
terms of 25,000, 50,000 or possibly even 100,000 as a goal. I jokingly
added "what about even 250,000?" He laughed and replied "Yes, why
not?"
This conversation came back to me years later when I read a copy of
the speech delivered by Robert Kiln, a senior Lloyd's Committee member
throughout most of the 1970s, delivered at a City Financial Conference
in early 1981. In this speech, Mr. Kiln stated that Lloyd's might well
have 50,000 members by the 1990s. At the time of the speech, Lloyd's
had only 19,089 Names. To many people, the suggestion that Lloyd's
would more than double in size in 10 years would have seemed highly
unlikely but not to Bob Kiln. I believe that Bob Kiln, like other
senior Lloyd's personnel, must have been well aware of the scale of
the asbestos problem and the consequent urgent need to attract new
Names when he gave his speech in 1981.
Mr. Hitchcock and I had a very serious conversation relating to
Lloyd's US operations and solvency that went on, not only in the
evening, but in the day time with his two brilliant assistants. I
learnt more about Lloyd's financial operations in America than on any
previous visit to New York. On the flight home I became sad to realise
that, in order to find out what was going on in US insurance circles,
there was no way, other than going there physically, that I, in my
position as an ordinary underwriter, could find out. I then realised,
with irritation, what a tremendous advantage the "Seniors" at Lloyd's
enjoyed with their syndicate paid for visits, how they could acquire
knowledge and then keep it to themselves. It is the deputy
underwriters and the Names (external especially) who suffered.
Because I did not realise what was going on, namely the suppression of
Attorneys' Reports from the US by Lloyd's "Centre" and because I
believed the successive Chairman of Lloyd's speeches delivered at
Lloyd's AGMs at which no mention of asbestos pollution was made, I
thought that, notwithstanding the size of the problem, everything was
all right. I never "reported" back to Peter Green on my "asbestos"
findings but I knew that there was no need to do so since, as Deputy
Chairman of Lloyd's, and subsequently Chairman, he would have been
well informed of the situation. I did, however, mention what I had
found out about the huge impending asbestos liabilities which would
soon be cascading into the Lloyd's market to a few people, including
Murray Lawrence, later Deputy Chairman of Lloyd's, and Ralph Rokeby-
Johnson.
They listened very quietly to all I had to say but did not really
comment. Ralph Rokeby-Johnson did however tell me that there was
already an unofficial asbestos working party looking into the asbestos
problem. This later became an official Asbestos Working Party in
August 1980. C. Closing of the 1979 Year of Account A few years after,
in 1982, I was the joint Underwriter of Bryan Barrie Underwriting
Agencies Limited. Bryan Barrie and I wished to leave the 1979 year of
account open as we considered that the losses would exceed premium
income, but that we would show a profit in 1980, (which we did) and
make up for it. We were a new Syndicate and hence had minimum
reserves. Our Finance Director at Bryan Barrie Underwriting Agencies
Limited was Peter Dixon. I told Peter that Barrie and I proposed to
leave the 1979 year of account open. Bryan Barrie and I had done our
calculations and had decided that the 1979 year should be left open.
Peter Dixon said to me "I have been talking to your old mucker, Peter
Green" who had said, "Peter try to get Bryan and Roger to close their
1979 year of account". Dixon said, "So you Roger must close it, you
have been recommended to by Green, your old boss".
As a consequence, against our better judgment, we thought that we
should do as the Chairman of Lloyd's recommended. Consequently we
closed the 1979 year of account, although we did not believe that we
had sufficient reserves to do so, and so called upon the Names to pay
the "loss". I subsequently felt very let down in June 1982 when I
learnt that Peter Dixon left the 1979 year open on other Syndicates
that I was on, namely Syndicates 918 and 157, being the non-marine
Syndicates of the PCW Group, for which he was also the Finance
Director. It seemed one law for 901 and 921 and another for 918 and
157, pragmatic purposes to rule before equality considerations to the
same Name, as I was involved in both camps.
Evidence now to hand, elsewhere, does more than suggest that the 1979
year of account had to be closed to secure the safe passage of the new
Lloyd's Bill in July 1982, and that certain "knowledgeable" senior
underwriters used unlimited run offs place at Lloyd's to assist them
in passing solvency, all syndicate reserves having been seriously
depleted by previous years adverse trading. Again, it is quite clear
that the "Seniors" at Lloyd's used their position to benefit their own
syndicates.
The run-off policies placed by the "Seniors" were effected largely to
off-load asbestos liabilities. Many of the Seniors who placed
unlimited run-off policies were on the Committee of Lloyd's or on the
Asbestos Working Party, the formal body set up in August 1980, to co-
ordinate Underwriters' response to the US asbestos liability problem
and to provide the market with information, such body replacing the
informal asbestos working party which Ralph Rokeby-Johnson had
referred to on my return from New York in September 1979. Many of
these Seniors such as Charles Skey, Ralph Rokeby-Johnson, Murray
Lawrence and Don Tayler were underwriters on syndicates which had huge
asbestos liabilities.
Whilst I and no doubt others were recommended to close our 1979 year
of account, the "Seniors" off-loaded the liabilities of their own
syndicates via the run-off contracts which they placed onto
underwriters who were not privy to the information which they
themselves had.
In this way, liabilities in respect of syndicates which had closed
their 1979 year of account when they should not have done so were
passed on to future Names which should not have been so passed, just
as the Seniors themselves passed on their own liabilities via the run-
off contracts which they placed. I believe that this was done to
postpone the "coming home to roost" of the huge problems which Lloyd's
faced, many of them asbestos-related, in order to ensure that the
Lloyd's Act 1982 was passed.
I confirm that this statement is true to the best of my knowledge and
belief.
signed ROGER WALTER SLEIGH BRADLEY
Sworn before me at this 29 day of July 1996