US media interest Courts on opposite sides of the Atlantic are considering aspects of the case involving Bermuda-domiciled Electric Mutual Liability Insurance Co. (EMLICO).

And the Boston press is becoming increasingly interested in details surrounding how EMLICO was given permission by the Massachusetts Division of Insurance and Commissioner Linda Ruthardt, to move to Bermuda in the summer of 1995.

That interest was heightened by the claim from Ms Ruthardt this month that she was pressured to back off the investigation of EMLICO by a state cabinet secretary. Ms Ruthardt said she considered quitting her job over it.

She alleged that former state consumer affairs secretary Nancy Merrick, who is now a state Superior Court Judge, asked her in June 1996 to ease up on the probe into EMLICO, saying that it was the wish of then Governor William Weld's administration.

Ms Merrick has since denied the accusation, yet it is one that is even more curious when placed in the context of what the Commissioner actually did in the face of the alleged interference.

The Boston press has pointed out that Mr. Weld has now joined a law firm that is doing major work for GE. Others connected to Weld including confidants and employees of his administration, and one who heads a group that nominates state judges, also work for GE or on behalf of its insurance interests.

Ms Ruthardt has faced allegations from EMLICO's reinsurers that GE and EMLICO had deliberately deceived her about the reasons for moving the company to Bermuda, and misled her about the company's solvency.

EMLICO's position is that the company was solvent until a new method of reserving for losses was employed. The company is in liquidation in Bermuda.

David Lines and Peter Mitchell of Coopers & Lybrand Bermuda, together with Christopher Hughes of Coopers & Lybrand London, are the liquidators.

The objecting reinsurers claim the firm practised fraud in a scheme to export the company's problems to a jurisdiction that favoured the firm's circumstances.

General Electric (GE) Company's long-time mutual liability insurer, EMLICO, filed for bankruptcy in the Bermuda Supreme Court four months after splitting off the "good'' business into a Massachusetts subsidiary and redomesticating the company with the "bad'' business to Bermuda.

Reinsurers complained that it would have the effect of forcing them to pay more to EMLICO than if they had stayed in the US, and, on an accelerated schedule.

At issue are potentially billions of dollars of claims from GE to EMLICO for the clean-up of toxic dump sites across the US. Some of the insurance risk was ceded by EMLICO to a number of reinsurers.

The extraction of EMLICO's "good'' business had the effect of leaving GE as the sole creditor of the remaining firm. Bermuda liquidations, unlike those in the US, are virtually controlled by creditors.

Unfortunately, the US press, probably with a little prompting from the reinsurers, continue to misconstrue Bermuda law as therefore being more lenient. It's at least doubtful that the reinsurers have bothered to correct this misconception, if in fact they disagree. Ms Ruthardt, herself, has conceded her suspicion that EMLICO was less than completely candid during the period they were making submissions to her office. But in the end, she sought to surrender her right to investigate the fraud allegations by proposing a controversial settlement agreement that would allow for a US receivership of EMLICO in conjunction with the Bermuda liquidation.

That agreement was hammered out among representatives from the Commissioner's office, GE and EMLICO. Reinsurers complained the deal was unfair, they would still get stuck with a hefty bill, and the fraud issue would die.

The fraud issue is important not just in the US, but also here. Although it is hotly denied by EMLICO and GE, they have been instrumental in avoiding having the issue heard in the courts.

But if it should, and the case be proven, then Bermuda authorities would have allowed EMLICO into Bermuda with the wrong information. And one of the key requirements for such a company's move to Bermuda is the satisfaction of the regulatory authorities in the company's original jurisdiction.

EMLICO and GE deny there is any fraud to investigate and counter-claim that certain reinsurers were simply trying to avoid their obligations. Some of the objecting reinsurers have already settled with EMLICO and removed their objections. The future of the proposed settlement agreement is in the hands of the Massachusetts Supreme Judicial Court, which received submissions and oral arguments from the various parties earlier this year.

It was originally anticipated that they would have rendered an early judgement on the complex case.

Meanwhile, in London before the Privy Council, oral arguments could begin as early as January in the judicial review matter. Kemper Reinsurance Co. had been granted leave by Justice Ground in the Bermuda Supreme Court to bring certain judicial review proceedings against the Minister of Finance and the Registrar of Companies, with the view toward having EMLICO's right to move to Bermuda rescinded, forcing them to return to Massachusetts.

A liquidation in the US, reinsurers thought, could not be controlled by GE.

But the leave was set aside by Justice Wade in December 1996. Kemper went unsuccessfully to the Court of Appeals which upheld jurisdictional objections lodged by EMLICO. Kemper also failed in an alternative application to have the higher court itself grant leave for Kemper to bring such judicial review.

Kemper is in London appealing these decisions, with representations to be made by lawyers on behalf of the Registrar of Companies and the Minister of Finance.

COURTS CTS