Lloyd's of London Pays Big Bucks in Michael Jackson Death Claim

Lloyd's of London has dropped its claim that it doesn't have to honor a huge insurance policy on grounds it was never told Michael Jackson was a drug addict ... and we've learned Lloyd's has now agreed to a payout.

Lloyd's filed a lawsuit claiming it did NOT have to honor the policy it issued to cover losses from the failed "This Is It" tour. Lloyd's felt it had been deceived because no one ever disclosed Michael had serious drug problems.

The case just settled and we know ... Lloyd's has paid something to settle. We're told it's not the full $17.5 mil under the policy. We do not know the amount ... just that it forked over money.

The reason a payout is so important -- Lloyd's essentially folded on its fraud claim.