regain control of Bermuda-based Emlico, seemingly ending a drawn-out battle, reports Ahmed ElAmin Massachusetts insurance regulators yesterday lost their battle in the state Supreme Court to be appointed receivers in the liquidation of Electric Mutual Liability Insurance Co. (Emlico).

Justice Greaney of the Supreme Judicial Court also affirmed that the controversial insurance company was a Bermuda corporation and was being lawfully liquidated on the Island.

A decision in the state insurance regulators' favour could have resulted in a confrontation between Bermuda and Massachusetts over where Emlico was to be liquidated.

In making his judgment Justice Greaney accepted a previous Massachusetts court decision that regulators erred in allowing Emlico to be redomesticated to Bermuda. However he stated that legally and practically the liquidation should occur on the Island.

Although his judgment has no legal standing in Bermuda, Justice Greaney's assertions backs Government's decision to allow Emlico to incorporate here in 1995. The ruling also backs the legal standing of Emlico's court appointed joint liquidators in Bermuda.

"It follows in my mind that Bermuda has lawful jurisdiction over the liquidation,'' Justice Greaney stated in a decision handed down yesterday.

"The fact that Emlico may have a corporate existence in Massachusetts does not negate this conclusion since a corporation can have a lawful existence in two jurisdictions.'' Justice Greaney also considered the fact that no Massachusetts interest would be harmed by the on-going liquidation in Bermuda.

Key to his consideration was a move by General Electric Co., Emlico's sole policyholder, to settle reinsurers claims against the collapsed insurer.

About four months after Emlico relocated to Bermuda it declared bankruptcy, leaving its reinsurers holding the bill for around $500 million needed for reserves to cover GE's asbestos and environmental liabilities.

GE faces what some observers said could amount to $2 billion in cleanup costs related to its US environmental liabilities.

The reinsurers cried foul, claiming GE knew the company was insolvent before the redomestication. They claimed GE had moved the company to Bermuda to get a more favourable liquidation in terms of the amount of money it could recover from the reinsurers.

With legal proceedings besetting the company, and the state regulators attempt to regain control of Emlico, GE moved quickly to defuse the issue. The company settled with London-based reinsurers earlier this month. Previously GE had also made settlements with other global reinsurers of Emlico. A GE unit ended up purchasing its most vocal and litigious critic, Kemper Re.

In closing his written decision Justice Greaney stated that the claims of fraud was still a "seriously disputed question'' but said it was not for him to decide in the case.

"This question, if it is to be resolved at all, is to be answered in other proceedings in different fora,'' he said.

He also suggested Massachusetts commissioner of insurance Linda Ruthardt could seek permission from Bermuda's joint liquidators to proceed in some fashion with an ancillary receivership in Massachusetts.

Joint liquidators David E.W. Lines and Peter C.B. Mitchell of PriceWaterhouseCoopers Bermuda could not be reached for comment last night.

In January this year the Massachusetts Supreme Court ruled Ms Ruthardt had no power to authorise Emlico's move. The court said actually Emlico never left Massachusetts.

That forced the commissioner to seek receivership and take control of the company, as she is required to do of all insolvent Massachusetts insurers.

COURT DEFEAT -- Linda Ruthardt COURT CTS