The Bermuda liquidators of the failed reinsurer First Virginia Re have filed a claim in the US courts for upwards of $57 million to be returned from the company's parent company, the Reciprocal Group.

Last week the insolvent Bermuda insurance company was ordered to wind up in the Bermuda Courts.

The company, which has shortfalls of between $79 million and $111 million, was set up in the 1980s as a reinsurance vehicle for health care corporations in the US state of Virginia.

Documents filed with the Virginia State Corporation Commission on November 14 show that the failed company‘s liquidators Malcolm Butterfield and Michael Morrison filed to get the monies back from the parent company.

The petition asks that the receiver of Reciprocal “return to a certain trust account the sum of $56,991,620.55 plus 9 percent interest per year from April 3, 2003”.

But the Virginia court ordered that the matter by stayed until the Reciprocal is dissolved and//or the bankruptcy court issues to do with the company are resolved.

In about three months' time receivers in Bermuda are to schedule a meeting of creditors and contributors of First Virginia, according to a legal notice posted two weeks ago

The collapse of First Virginia is part of an insurance scandal which has rocked the US state and has left thousands of policy holders - doctors, lawyers, hospitals and medical associations - without cover and shortfalls estimated at more than $200 million.

And a lawsuit was filed two weeks ago in Virginia by the Virginia Insurance Commissioner, Alfred Gross, seeking to get back the money owed from 21 separate individuals and companies who are involved with the companies behind First Virginia.

Mr. Gross alleges a long history of concealed payments, fraudulent transactions, secret agreements designed to out-fox regulators, conspiracy and breach of fiduciary duties.

The mid-80s liability capacity crisis in the US led to the formation of First Virginia Re - a Bermuda-based treaty reinsurer set up in 1984.

Managed by Atlantic Security, First Virginia was owned by 32 tax-exempt, mostly health-care corporations generating more than $30 million of gross premiums a year in the late 1990s.

First Virginia Re reinsured physicians professional liability policies issued by a doctor-owned risk retention group in Tennessee and a hospital-owned admitted carrier licensed in 14 states. The failed company hit the headlines in the US earlier this year after its financial collapse forced State regulators to take over a Virginia medical malpractice insurer, Reciprocal of America.

This company, domiciled in Virginia, insures hospitals for malpractice, workers' comp and premises liability and used First Virginia Re as its reinsurer.

Virginia's State Corporation Commission blamed both the US insurer's financial difficulties on its claims-related losses and the inability of First Virginia to honour its obligations to Reciprocal of America.

Mr. Gross said in the lawsuit, which is looking for payment of money owed to each of the insurers involved in the alleged scam, that the layers of insurance companies were set up to line the pockets of those who set the business up.

The Virginia Bureau of Insurance discovered that Reciprocal of America only had 10 percent of the capital it should have, and on January a judge in Richmond Circuit Court ruled that its financial condition was so poor that it posed a hazard to policyholders, creditors and the public and the state took over the company.

In June, after a hard look at the numbers by Mr. Gross and a team of experts, they found that the company had been insolvent for months and owed million more than it had in hand. The State Corporation Commission ruled that Reciprocal America was insolvent and ordered it and its affiliates be liquidated.

As a result, in October this year, First Virginia applied for its own winding up on the grounds of insolvency, and this was granted on October 13. It went before the Supreme Court again and an order was issued with an order to wind up last week.

Just how much money can be recovered from First Virginia and passed on to its creditors and contributors will now not be known for a few months as a date for a meeting has been put off by the Bermuda courts.