Electric Mutual Liability Insurance Co., Ltd. (EMLICO) is only provisional, and neither the order, nor a letter of request from the Chief Justice, supports the delay of proceedings in a US court, lawyers for Massachusetts commissioner of insurance, Linda Ruthardt argued Friday.

The commissioner is in a messy, legal battle with Bermuda liquidators for control over the insolvent insurer.

Her petition for receivership over the company, together with an injunction, were moved from state to federal court in a strategic play by the liquidators.

On Friday, commissioner Linda Ruthardt filed a bid in federal court to move the proceedings back.

Her arguments were presented through attorney general, Scott Harshbarger and special assistant attorney general, J. David Leslie.

They challenged the liquidators' assertion to a US court that they were "agencies'' of a foreign state, namely Bermuda.

The commissioner's briefs said that is not true, but that under Bermuda law, the liquidators are controlled by EMLICO's sole creditor, General Electric Co.

(GE).

"Indeed,'' the lawyers said, "the Bermuda Government has only yesterday expressly disavowed any control over them.'' They quoted a note to editors from the Minister of Finance's press statement Thursday which said: "Under Bermuda law, liquidators of a company incorporated in Bermuda act under the direction of the Supreme Court. They are not in any way under the control of Government.'' Another argument revolved around a Bermuda Supreme Court ex parte decision, taken immediately after the Massachusetts Supreme Judicial Court (SJC) ruled that EMLICO remained a state insurer and never left the commissioner's jurisdictional control.

Her brief stated: "The joint liquidators appear to assert that the Bermuda Court has already determined how to respond to the SJC's decision and the proposed receivership in the January 9, 1998 order.

"This position is astonishing. The joint liquidators fail to point out that the January 9 order was issued ex parte on sealed submissions. It was thus...provisional by its very nature.'' Her lawyers complained that despite the ongoing litigation in Massachusetts and "the fact that the (Bermuda) order is plainly directed at the commissioner,'' she was not even notified of the Bermuda proceedings.

"Unlike the SJC's decision reached after full hearing and participation by the joint liquidators and others, the ex parte provisional order does not warrant comity.'' On February 2, Chief Justice Austin Ward ordered the liquidators to meet with the commissioner and establish a protocol, through mediation if necessary, to "define and set out the respective functions'' of the two parties.

That same day he wrote asking a Massachusetts judge to direct the commissioner to abide by that order.

Ms Ruthardt's view on Friday was: "There is no statutory basis in Bermuda law for the Chief Justice to have made that request.'' In any event she continued, it was based on the ex parte order and unknown "submissions.'' Her brief said it is not clear that the Bermuda court had been informed of how the commissioner intends to proceed in Bermuda, which should allay the court's concerns over potential conflicts.

With respect to the liquidators assertion that they would be prejudiced by a US proceeding, as the Bermuda proceedings had been pending for two years, Ms Ruthardt's lawyers argued the legitimacy of EMLICO's domicile has been under attack in the US since 1995 and in Bermuda since early 1996.

In fact, they quoted from Justice Ground's 1996 decision to wind-up EMLICO against the wishes of reinsurer, Kemper Re, in which he refused to accept Kemper's assertion that "any steps taken by the liquidators in Bermuda would be undoable'' if the company was eventually sent back to be liquidated in Massachusetts.

The lawyers also stated: "In light of the commissioner's expressed plan to proceed in Bermuda once she is appointed receiver, it is odd that the joint liquidators are fighting to prevent her appointment.

"It appears they are presenting false images of potential conflict and interjecting themselves (and this court) into the proceeding not because of concerns for comity, but because they want to prevent the commissioner as receiver from requesting that the Bermuda authorities stay the Bermuda proceedings and turn over assets.

"The proper time to address their asserted comity concerns is when the commissioner, as receiver, makes her requests of Bermuda officials and the Bermuda court.'' The legal briefs stated that Ms Ruthardt's appointment as receiver would also permit vindication of both Massachusetts and Bermuda interests in avoiding proceedings that may have been made possible by fraud.

They said, "The commissioner and a Justice of the Bermuda Supreme Court have expressed serious concerns that the redomestication to Bermuda was part of a scheme by EMLICO and its principal insured, General Electric Co., to avoid liquidation of EMLICO in Massachusetts by misrepresenting and concealing the financial condition of the company until it could redomesticate, after which it would seek a winding up in Bermuda.'' Justice Ground, it was noted, had long concluded that "Kemper (an EMLICO reinsurer) has shown that it has a serious issue to be tried on the fraud allegation.'' And the commissioner noted her concerns in a July 1996 statement in which she referred to evidence suggesting that EMLICO management knew the company was insolvent by late 1994 or early 1995, but failed to inform the commissioner as required by law.

That statement also discussed a news report in an April 1996 edition of Business Insurance that suggested that EMLICO was considering the implications of a liquidation in Massachusetts versus other jurisdictions as early as 1994.

And the liquidators appointed by the Bermuda court in 1995 were consulted by EMLICO as early as December 1994 about possibly moving the company to Bermuda, and in February 1995 about EMLICO's proposed restructuring.

Ms Ruthardt's counsel argued that as late as August 1995, EMLICO claimed it was solvent with a surplus of $254 million, but just two months later, and after its move to Bermuda, its management said an increase in loss reserves of $679 million was required.

"Against this background of possible concealment,'' the brief continued, "the SJC has now determined that EMLICO remains a Massachusetts insurer.

"The joint liquidators -- full participants in that matter -- now seek a federal forum to relitigate that issue and assert purported comity concerns that ignore the commissioner's proposed course of action.

"The matter should be remanded to the Single Justice of the Supreme Judicial Court for hearing on the commissioner's petition.'' Ms Ruthardt stated that the SJC's decision that EMLICO is a Massachusetts insurer is final, and determines the identity of the defendant. She said the liquidators are "desperate'' in their attempt to avoid her appointment as receiver, claiming that they were in fact the defendant.

"The joint liquidators' primary contention,'' she argued, "is that there is only one EMLICO and it is a Bermuda company. This flies in the face of the Supreme Judicial Court's decision that EMLICO never left Massachusetts.

"As litigants before that court, the joint liquidators are bound by its decision and cannot now relitigate the issue.

"The joint liquidators in essence request that this court reconsider the Supreme Judicial Court's ruling on this state law issue in the guise of a federal determination.

"The Supreme Judicial Court's ruling, however, is not reviewable by the federal courts.'' COURT CTS