If ever there was a classic American success story, William T. Evans Jr. was it.

Like the enlistment posters used to say, he joined the Navy in 1965 and he learned a trade that served him well when he got out of the service. What he learned was virtually ever aspect of data processing. When he was discharged, Evans went to work for a series of big computer makers -- RCA, Electronic Memories and Magnetics, and Telex -- and soon enough the ambitious young veteran became a supersalesman. "I got to the point where I should have been earning more than the top guy," Evans recalled.

The answer, of course, was to become the top guy. So in 1974, Evans and another marketing ace, Daniel Morley (Univac and Telex), formed their own company, which they called Federal Leasing Inc. As the name suggests, Federal Leasing did much of its business with the federal government from offices in the booming Washington satellite, Tysons Corners.

Morley, who is now 41, concentrated on sales, while Evans, 36, ran the firm and became president of its parent holding company, FEDLEASCO Inc. Both were experienced in doing business with the government, and their new firm spececilized in leasing computers to governments -- state and local as well as federal."Federal Leasing became the largest data processing leasing company doing business with federal, state and local governments," said Evans. "We put equipment in almost every state. We were writing between $80 million and $100 million in business a year. We had $25 million of equipment in Virginia alone."

But the real key to Federal Leasing's overnight success was a unique insurance policy issued to the Virginia firm in 1974 by Lloyds of London. The policy agreed to pay off losses by lending institutions that were financing Federal Leasing's acquisition of the big computers if, under certain circumstances, users of the computers cancelled their contracts with Federal Leasing. "That policy had a tremendous effect on our company," Evans recalled.

By early 1977, just three years after they started their company, the two entreprenuers, who each owned 45 percent of the shares with the balance held by an outside investors, had become overnight successes. As middlemen between the banks that financed the computers and the customers who lease, they seemed to be in a dream business that operated on low overhead and high volume. The country's biggest banks -- Wells Fargo, Chemical Bank and Bank of California among them -- were delighted to finance the new company so long as their loans were covered by the generous terms of the Lloyds policy. The total value of computer equipment insured for Federal Leasing by Lloyds through 1977 was $130 million. While Evans demurs from giving specifics about his personal fortunes earned over a brief three years, industry sources speculate that Federal Leasing earned commissions of up to 10 per cent on its computer-leasing contracts that amounted to as much as $100 million a year.

As it turned out, 1977 was a pivotal year for Federal Leasing, and in the time since then, Bill Evans' American dream has turned into a financial and personal nightmare. His leasing business is fading away before his eyes, and he is helpless to reverse the process. The big and powerful banks that financed the massive mainframe computers for his business have cut off his line of credit. Litigation is mounting, and he has been forced to retain the costly services of John Doar, the former counsel for the Senate Committee in the Watergate trials, who is now practicing in New York.

One night in May 1977, with the pressures building as his young business was beginning to suffer reverses, Evans felt a little queasy as he drove home from work. He decided to swing by the local hospital. At 2 a.m. the next morning while Evans was asleep, his heart stopped, an event that would have meant sure death if he hadn't been in the hospital hooked up to a heart monitor.

What happened to Federal Leasing and to Bill Evans' dream?

Ironically the very instrument that allowed the suburban Virginia firm to grow so rapidly -- the insurance policy from Lloyds -- was also the cause of its reverses. For in 1977, Lloyds came to the frightening realization that its computer-leasing policy was the biggest underwriting disaster of the venerable insurer's 291-year history.

The details of Lloyds' controversial policy were described in the July 3 issue of The Washington Post. Birefly, Lloyds had insured policyholders against cancellation by computer users between years 4 and 7 of their lease. If a user cancelled for any reason and the leasing company could not find another market for the computer, Lloyds agreed to cover any loss caused by the cancellation. Between 1974 and 1977, Lloyds underwriters issued policies covering some $550 million worth of computers and about $500 million of peripheral equipment.

Then, in January 1978, after months of rumors, IBM announced a new line of computers called the 4300 series that were faster, more powerful and up to 30 percent cheaper than anything already on the market. Not surprisingly, computer users immediately began cancelling their leasing agreements -- and they've been cancelling ever since -- and lining up to get the new IBM series.

During an interview in London in August, Lloyds officials estimated that claims brought on by cancellations could amount to $220 million, by far the biggest loss in its history. Other sources, however, suggest that claims could total as much as half a billion dollars.In San Francisco, Itel Corp., which until recently was the fastest-growing leasing firm -- going from zero to nearly $1 billion in sales in less than 12 years -- was the biggest user of the Lloyds policy. Now its very survival may depend on whether -- and how soon -- Lloyds makes good on its claims, which one estimate pegs at $180 million.

At Federal Leasing, Bill Evans says Lloyds so far as paid $11 million in claims to several of his lending banks, but he says he has $40 million more in claims past due. In June, after being dunned daily by its lending banks, Federal Leasing filed a $627 million damage suit against Lloyds.

Lloyds has countersued Federal Leasing for $10 million. In responding to Federal Leasing's allegations, Lloyds simply seeks to undo the coverage given to Federal Leasing, saying it was not given all the facts by the firm. Lloyds says it will return the Virginia firm's premiums, which amounted to about $7 million. Lloyds also says it is not bound by an agreement on settling the claims on March 13, 1978, even though the court record shows that all the Lloyds underwriters involved in the coverages signed the accord.

Exhibits in the Federal Leasing suit filed in U.S. District Court in Baltimore, include a handwritten letter, dated March 13, 1978, and addressed to D. W. Nightingale, a Lloyds underwriter. Apparently prepared by Donald J. Greene and William W. Rosenblatt, two attorneys in the office of Lloyds' American counsel, LeBoeuf, Lamb, Leiby and MacRae, the letter urges Lloyds to settle the claims brought by Federal Leasing.

"If underwriters' good faith is not shown," the letter warns Lloyds, "it is likely that the problem of unnecessary acceleration of obligations could strike other assureds in the computer lease field and cause equally disasterous situations."

The letter also notes that "the computer and banking industries are close knit and news of the assured's dispute with underwriters is common knowledge." As a result, the letter says, the reputation of the underwriters has been "tarnished" -- that word is crossed out and above it is written the word "questioned."

Perhaps the most embarrassing section of the letter is the prediction that Federal Leasing might be successful if it filed suit (as the firm indeed did some 15 months later). "If this were to happen, the assured would recover not only the value of its claims, but also interest thereon, possibly any consequential damages resulting from the delay in payment (which could be great if the assured's financial condition were to deteriorate), and, perhaps punitive damages. In addition the expense to underwriters of this kind of major commercial litigation would be substantial."

But Evans says that the March 13, 1978, agreement was short-lived. Now, he says, he's convinced that Lloyds is following a policy of dragging out the payment in hopes that Federal Leasing will disappear. "I believe that Lloyds is doing anything possible to put us under," Evans claims. "And the problem is, we're dealing with a group that has unlimited resources."

As the litigation drags on, Evans has found he's persona non grata at the banks that once welcomed his business. One lender, the Bank of Lincolnwood, in Lincolnwood, Ill., recently was granted $400,000 judgment against Federal Leasing. Lloyds had also been a defendant -- and Lincolnwood had brought a $10 million damage suit against the British insurer as well -- but thanks to an earlier judgment, Lloyds cannot be named as a defendant until its litigation with Federal Leasing is settled. As a result, Federal Leasing alone is responsible to repay the Bank of Lincolnwood and any other lenders that might want to follow the lead of the Illinois bank.

Evans says he noticed that many of the banks have purged the officers who lent his firm millions of dollars based on the Lloyds policy. As for new business, Evans says financing is now dificult to come by.