General Mills, maker of Cheerios, Wheaties and other well known consumer products, has settled a property claim for $55 million in a legal battle involving Bermuda captive insurance companies that has been going on since 1999.

The Bermuda insurers are Gold Medal, which is General Mills own captive, and Hopewell International, a captive reinsurer that went into run off in 1995.

General Mills had insured through its captive Gold Medal, which had reinsured through Hopewell.

The disputed loss goes back to 1994 when a contractor hired by General Mills sprayed millions of bushels of oats, said to be enough for 165 million boxes of Cheerios, with the pesticide Dursban. This pesticide was cheaper than the one normally used but had not been cleared for human consumption by the US Food and Drug Administration.

The pesticide contractor went to jail and General Mills filed a claim with its captive after it dumped the product and dismantled and sanitised all equipment and storage vessels at several grain storage locations.

General Mills said most of its $168.7 loss was covered under a provision in its policy with Gold Medal that insured against `all risks of direct physical loss or damage to property insured and described.' This was disputed by Gold Medal who said the case resulted in regulatory agency related losses and not `the physical loss or damage' specified under the policy.

General Mills sued Gold Medal and won. But in the meantime Hopewell, which had reinsured much of the claim, had gone into run off in Bermuda and in 1998 had successfully filed for bankruptcy protection in the US. This effectively prevented Gold Medal from suing it in the US and forced it to enter arbitration in Bermuda as part of the Hopewell run off.

Hopewell reinsured captives and its scheme of arrangement was drawn up because in 1995 the magnitude was not known of its pollution exposure at Lloyd's of London. The scheme was proposed as a means of cutting down the traditional run off period of 20 years and gaining savings on administrative costs. Under the scheme all claims would be paid by June 30 2001.

Arbitration between Gold Medal and Hopewell and other reinsurers in the same issue has not yet been concluded.