NEW YORK (Bloomberg) — Insurers Argus Group Holdings Ltd. and Tremont International Insurance Ltd. reached a partial settlement of a policyholder lawsuit over the companies' investment with Bernard Madoff, court records say.

The lawsuit in Manhattan federal court claims the insurers are liable to policyholders with certain annuities or life insurance policies for fraud and breach of duty because the insurers invested with so-called Madoff feeder funds. The settlement provides that Argus International Life Bermuda Ltd. will provide low-interest loans to policyholders whose policies may lapse so they can afford to pay premiums.

The accord, which provides for no cash payments, was reached due to the "difficulty of establishing jurisdiction over the Bermuda-based" defendants and of "establishing their liability and recovering damages", the plaintiffs said on Monday in court papers.

The settling cases are part of a larger group of Madoff-related investor lawsuits against Tremont Group Holdings, a hedge-fund firm owned by Massachusetts Mutual Life Insurance Co. The settling cases are on behalf of Argus and Tremont Insurance policyholders who invested in the Tremont and Rye Select Funds, which in turn invested with Madoff.

Argus said three months ago that it had reached a settlement in principle, as reported in this newspaper. "Yesterday's development represents the next step in bringing the legal matters to a close as per our press statement dated May 27, 2009," Argus CEO Gerald Simons said yesterday.

The settlement is among the first in Madoff-related litigation. Banco Santander SA, Spain's biggest bank, agreed in May to pay $235 million to the trustee liquidating Bernard Madoff's defunct money-management firm to settle claims related to Madoff investments by two of its hedge funds. Other funds that invested with Madoff also have been sued.

"This is an important first step for getting relief for people who had exposure to Madoff through Tremont," Demet Basar, a lawyer for the policyholders, said in an interview yesterday. About 100 policyholders will benefit from the accord.

The Argus settlement, which provides that the defendants will assign their legal claims against others to a litigation trust, needs court approval.

The suit seeks class-action, or group, status on behalf of policyholders.

Madoff, 71, is serving a 150-year prison sentence for masterminding a massive Ponzi scheme.