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WASHINGTON -- Hands across the water helped strip a controversial provision on Lloyd's of London from the omnibus U.S. budget bill before it was enacted.

The provision, which would have amended laws to block U.S. courts from enforcing judgments by British courts against U.S. Lloyd's names by British courts and given the names new defenses in their suits against Lloyd's, became known late last week as Congress hammered out a budget agreement (BI, Oct. 19). British and U.S. regulators responded quickly.

A British Embassy spokesman in Washington, while declining to say what role the British ambassador played in squelching the provision, said, "Where British interests are involved, obviously the Embassy will make representations regarding those interests."

A spokeswoman for the U.K. financial regulator, Her Majesty's Treasury, said: "We were keen to uphold the jurisdiction of U.K. courts. This is very welcome because, if passed, it could have jeopardized the protection of all Lloyd's policyholders," she said.

A Lloyd's of London spokesman confirmed the amount of debt that could have been affected by the provision was $150 million.

A group of U.S. names has denied that the provision would have put policyholders at any risk (see Letters, page 8). The group's members say Lloyd's defrauded them; Lloyd's has denied that claim.

Louisiana Insurance Commissioner Jim Brown, who also is chair of the National Assn. of Insurance Commissioners' surplus lines committee, said the provision apparently came from the office of Rep. Henry Hyde, R-Ill. Rep. Hyde's office did not return a call by Friday.

Mr. Brown said "the focus of our concern was American policyholders, not Lloyd's investors." He emphasized that the NAIC was not acting as a "mouthpiece for Lloyd's." He said Lloyd's has a "huge presence" in Louisiana, and "We want to be sure that nothing is done to impair Lloyd's' obligations throughout the U.S."

"The problem was the last-minute efforts to put some unknown factors involving Lloyd's into the budget bill without any input, review or understanding by insurance commissioners. That was disturbing. There is no federal regulation of insurance. It's done by the states," he said. "Even if the proposal had merits, commissioners throughout the country were deeply concerned there was no opportunity to review or have any input in the proposal," he said.

He said he contacted House Appropriations Committee Chairman Bob Livingston, R-La., who had initially supported the provision but agreed to remove it.

Harvey L. Pitt, a partner at Washington law firm Fried Frank Harris Shriver & Jacobsen, which represents Lloyd's, called the provision "an example of the legislative process at its worst, because it was an effort to sneak something in without telling people what it did or why it was bad."

Matthew MacDermott contributed to this report.