A British Court of Appeals decision handed down against a Bermuda company, Mutual Reinsurance Company Ltd., has been highlighted as a prime example of the new ground that has been broken recently involving insurance insolvencies.

Roger Enock, partner at Freshfields Solicitors in London, has been involved for five years with the collapse of the Weavers Underwriting pool and the KWELM group of companies, the largest insurance insolvency.

Mr. Enock was speaking yesterday at the International Reinsurance Congress in Bermuda.

Mutual Reinsurance had brought proceedings against its auditors KPMG here in Bermuda. The auditing work itself was being carried out by the associated firm in London, Peat Marwick & Mitchell.

Mr. Enock said the point that was considered for the first time by the English courts was a simple one and very much peculiar to Bermuda.

"It is standard for Bermudian companies to indemnify their directors and officers for all acts of negligence, other than acts of fraud or wilful default,'' he said.

"It's historical and has been in virtually all companies' bylaws for many years. Proceedings had been commenced by this Bermuda company against their auditors, alleging negligence for failing to detect a fraud that was being perpetrated by certain members of the management of the underwriting agent.'' The auditors claimed they were officers and therefore entitled to the benefit of the indemnity that the company has given to the directors and officers. The company said that it wasn't true.

"While there is a line of English cases,'' said Mr. Enock, "which suggest that an auditor may be an officer, when you are actually concerned with this specific indemnity that's given by Bermudian companies, there is a clear distinction to be drawn between officers and auditors.

"The judge in the first instance in London agreed with that view. But the Court of Appeal didn't, and held in a unanimous judgment, the judgment of Lord Justice Hobhouse, that for certain purposes, the auditors of a company for the purpose of a statutory audit, are officers and are entitled to the benefit of the indemnity the company gives to those officers.

"We shall have to see whether that case proceeds to the House of Lords.'' Mr. Enock also discussed the "pay as paid'' point, involving excess of loss reinsurance contracts which accept that the reinsurer will pay in accordance with losses that have actually been paid by the reinsured.

UK government mulls changes in law He said an issue involves a cedant who becomes insolvent and is not actually paying claims. Is the insolvent insurer entitled to be paid in full by the reinsurer, even though it is paying no claims itself? One view was that it would have been absurd that reinsurers could avoid their obligations because of the fortuitous circumstances of someone going bust.

Law Lords had agreed, said Mr. Enock, that the reinsurer was really reinsuring the liability of the reinsured, rather than an actual payment of cash by him.

The London lawyer said that after many years, schemes of arrangement were commonly accepted in the UK, as the best way of dealing with insolvencies, in terms of the return to creditors, the cost of the run off and the time within which dividends could be paid out.

The British government is proposing legislative changes that will make it easier and quicker for the schemes to be put through. The changes may allow company directors to have a greater opportunity to implement schemes, rather than forcing the requirement of the hiring of professional liquidators.

Changes may also occur in terms of the classes of creditors.

10TH INTERNATIONAL REINSURANCE CONGRESS TODAY AT THE CONGRESS DAY 3 -- HOW THE INDUSTRY MUST CHANGE 8.45 a.m. to 9 a.m.: Chairman's introduction George Cochran, Managing Director, Coopers & Lybrand Corporate Finance, Chicago.

9 a.m. to 9.45 a.m.: US CEO's perspective Robert Morgan, President and Chief Executive Officer, Cincinnati Financial Corporation, Fairfield.

9.45 a.m. to 11.15 a.m.: Strengthening of capital through mergers, acquisitions and capital raising Moderator: George Cochran, Managing Director, Coopers and Lybrand Corporate Finance, USA. Also: Allan Fulkerson, President, Century Capital Market, Boston; Marty Dolan, Executive Director, Lehman Brothers International, London; John Hendrickson, Managing Director, Securitas Capital LLC, New York; David Kimmel, Vice President, JP Morgan & Co. Inc., New York.

11.45 a.m. to 12.45 p.m.: Alternative to traditional reinsurance -- fact or fad? Moderator: John Baily, Partner, Coopers & Lybrand, Hartford. Also: Emilo Fernando, Chase Manhattan Bank NA, New York; Robert Coords, Vice President, AIG Re, New York.

2.15 p.m. to 3 p.m.: Catastrophe reinsurance -- government's role Moderator: Ian Dilks, Partner, Coopers & Lybrand, London. Also: Leslie Lucas, Chief Executive, Pool Re, London; Robert Morgan, President and Chief Executive Officer, Cincinnati Financial Corporation, Fairfield.

3.30 p.m. to 4.15 p.m.: Distribution challenges -- the changing role of the intermediary Byron Ehrhart, Executive Vice President, Aon Re Services Ins, Chicago.

4.15 p.m. to 5 p.m.: Future challenges for risk managers Steven P. Norton, Principal, Insurance Risk Management, Coopers & Lybrand, London; Mark Butterworth, Group Insurance and Risk Manager, Prudential Corporation Plc, London.

8 p.m.: Gala dinner hosted by Coopers & Lybrand and Hawkesmere Plc at the Cafe Lido Restaurant.