Even if Electric Mutual Liability Company (EMLICO) moved to Bermuda to improve its position in a potential liquidation and make better recoveries from reinsurers, it would not be considered to be fraud in Bermuda, a lawyer for EMLICO's provisional liquidators argued yesterday.

Lawyer Elizabeth Gloster submitted in the Supreme Court yesterday before Puisne Judge Justice Ground that EMLICO's move from Massachusetts to Bermuda was neither wrong nor abusive. EMLICO reinsurer Kemper Re wants Justice Ground to dismiss or adjourn the application to have the company wound up. They want a trial on the issues of the case, a trial of their allegations of fraud.

EMLICO's counsel says it's extremely unusual that Kemper Re, as an EMLICO debtor, is even being heard by a court dealing with the winding up of EMLICO.

In most cases, only creditors are allowed.

Ms Gloster has also suggested that the court is limited in its function, to making the winding-up order or adjourning the proceedings. An adjournment, she added, would not be in the public interest, and for the court, would be ducking the issue.

EMLICO, and its major creditor and principle policyholder General Electric (GE), have submitted that they could be damaged by a delay of the liquidation of EMLICO.

One fear is that other reinsurers could become insolvent as the issue is debated over future years, delaying and possibly decreasing reinsurance receipts. One of EMLICO's reinsurers has already become insolvent.

On the other hand, it is argued, no evidence was before the court that Kemper Re would be prejudiced if the winding up order was made.

A group of EMLICO's reinsurers, led by Kemper Re, have alleged that EMLICO moved to Bermuda a year ago, leaving its "good business'' to Electric Insurance Company in Massachusetts, while bringing under-reserved pollution business here, for the purpose of liquidation. They claim the insurer was already under-reserved and insolvent in 1994.

The reinsurers claim that a knowingly-insolvent EMLICO deliberately deceived regulators in Massachusetts and in Bermuda into thinking they were solvent, and that GE was a party to the scheme.

GE lawyer Kenneth Rokison rebutted yesterday that EMLICO had acted throughout the move to Bermuda as an independent corporate entity and that it was not under GE's control.

Registrar of Companies Kymn Astwood has said in an affidavit that he did not believe that he, or the Minister of Finance "was misled in any way by EMLICO''.

The state regulator in Massachusetts who evaluated EMLICO's financial condition testified last week in Boston that he probably would not have supported the company's redomestication to Bermuda, if he knew then, what he knows now about the comapny's financial standing. With hundreds of millions of dollars involved, a central issue for litigants is when EMLICO knew it was insolvent -- before, or after relocating to Bermuda.

GE agrees with EMLICO that the courts shouldn't be adjudicating what is essentially a dispute that would normally lead to an arbitrated settlement.

Ms Gloster insisted that although the reinsurers have claimed fraud was involved, they have produced no evidence to back up their claims. And if they did bring evidence, they would have to meet a very high standard of proof.

She described it as "quite monstrous'' that there was no expert evidence to support their claim of fraud against a company with an unblemished record. And evidence by inference and speculation was not good enough.

She pointed out that before EMLICO moved to Bermuda, there was no criticism from their auditors KPMG, or from the Ernst & Young accountants, who were brought in independently by the Massachusetts Insurance Commissioner.

The case continues today.