A computer leasing firm in McLean filed suit yesterday against Lloyds of London, seeking $500 million in punitive damages from the British underwriting group for allegedly failing to pay insurance claims on one of its more esoteric types of coverage.
Filed in U.S. District Court in Baltimore, the action was brought by Federal Leasing Inc., a privately owned firm with headquarters at Tysons Corners.
Federal leases giant computer equipment to federal agencies, municipal and state governments and corporations. The leases typically run for periods between 4 1/2 and 7 years, the suit says.
The suit says that Federal Financed the equipment with loans from many of the major U.S. banks.
For examplle, if a government agency failed to get an appropriation to continue leasing one of Federal's computers, Lloyds agreed to pay off Federal's financing charge on the computer with banks.
As security, Lloyds had first claim on the computer's residual value after the contract was cancelled.
During the past four to five years, the suit claims Federal placed about $130 million of computer leases on the bais of the Lloyds policy.
But in 1977, the suit says, rumors spread that IBM was about to introduce a new line of computers that would date much of the equipment that Federal has leased.
When IBM did come out with a new computer line, many of Federal's customers canceled their leases on the older IBM machines in order to replace them with the new line, the suit says.
Apparently IBM's new line was so advanced that Lloyds could not find buyers for the old equipment, which had begun flooding the market.The suit says that Lloyds failed to pay $30 million in claims by Federal for leases that were terminated by customers.
The suit also claims about $80 to $100 million in leases could still be canceled and asks the court to order Lloyds to pay if those leases are canceled.
Further, the suit asks for compensatory damages of $50 million, plus the $500 million in punitive damages.
The suit names as defendants the Underwriters at Lloyds, a group of 56 separate syndicates that make up the risk-taking pool. The suit also names 17 British insurance companies that underwrote a portion of the policy.