A former Bermuda Fire & Marine Insurance Co. Ltd. board member and one of the Island's leading lawyers yesterday told a court he would not have allowed the 1991 reorganisation of the company to go ahead if he believed it would have led the business into insolvency.

Richard Spurling, a partner at Appleby Spurling & Kempe and former UBP MP for St. George's South, yesterday began his testimony as a witness for defendant BF&M Ltd., the company that was created in 1991 to hold Bermuda Fire's profitable domestic business.

"I did not believe that the intentional business was hived off in order to let it sink, as I am aware has been suggested,'' he said in his witness statement.

"...If it had been suggested for a moment that the international business was obviously going to cause the corporate entity to fail, then I personally would not and could not have agreed to the reorganisation and from my knowledge of the other individuals on the board, believe that each of them would not have allowed it to proceed.'' Mr. Spurling joined Bermuda Fire's board in 1984. He said he assumed he was asked because the company wanted another lawyer on the board. He specialises in corporate and company law.

"In addition, my family had a reasonably-sized investment in the company,'' he stated. Under procedures being followed in the Bermuda Fire fraud trial, witness statements are affirmed before the court. The witness is then questioned by the other lawyers involved in the fraud suit brought by Bermuda Fire's liquidator Ernst & Young.

Mr. Spurling said as a board member he was aware of the continuing losses mounting from Bermuda Fire's international operations, which had stopped writing any new business by 1985 and was in runoff.

He said he believed the losses followed a pattern similar to other runoff operations. During the early stages it was typical for losses to mount then level off in later years.

He noted board minutes of meetings in the 1980s which referred to discussions about the adverse development in the international business which had been mainly written through H S Weavers (Underwriting) Agencies Ltd.

"The adverse development on Weavers was a continuing theme,'' he stated.

"This did not worry me as, in my view, adverse development is almost to be expected in a run-off situation in the early years...

"I knew enough about reserving to know that reserving was not a science, rather a fine art. There was always some flexibility required and very often trends would only emerge over a period of time.

"The usual pattern was that the claims would peak then settle into decline and I thought this would happen in due course. That said, I know there were sometimes developments that no one could anticipate, for example, legal decisions emanating from the United States, which opened up new areas of liability.'' He said no one at the time could anticipate the impact of losses from pollution claims on policies the company wrote. He said the board believed that the company was protected from pollution claims by exclusion clauses in the policies.

Mr. Spurling said he was present at the meetings of July 9 and September 6 in 1991 at which the reorganisation was discussed and approved by the board. He recalls at least one director asking whether the surplus of $15 million left behind in the Bermuda Fire operation could be recovered once all the claims were run-off.

Cooper & Lines, the company's auditors and a defendant in the suit, subsequently reduced the estimate to $12 million.

"Generally, I believe the incentives for the reorganisation were good commercial ones,'' he said.

"I thought the reorganisation would recognise that the international business was very different from the type of domestic business which BFMIC specialised in. It would be commonplace to separate the types of business into two corporate entities. There would be obvious benefits from the management point of view, for example, the development of expertise in the particular areas and profit centre accounting.'' He said a second impetus for the reorganisation was the delay in getting information from Weavers for the company to comply with statutory filings as required under Bermuda law.

"This was a matter of some embarrassment for a public company,'' he said.

"We had had to delay the annual general meeting on one occasion because of the lateness of the publication of the annual report. All these things are very damaging to shareholder confidence.'' He was confident about the reorganisation as the company had engaged Conyers Dill & Pearman and Cooper & Lines to advise on the restructuring and put it into effect. The board approved the reorganisation on the basis of the best possible information available at the time from Weavers, actuarial firm Tillinghast and the company's auditors, he said.

"I have been asked why I believe the company became insolvent so soon after the reorganisation,'' he stated. "I believe there was unexpected further adverse development which nobody predicted nor could have predicted. Given the adverse development we had experienced, I believed that the book of business was maturing and that the adverse development would level off and then decline.'' He believed the board took the "proper steps in all circumstances'' during the reorganisation and the subsequent dividend of shares in BF&M to Bermuda Fire shareholders.

Under cross examination from Robin Potts, the lawyer defending the five board members on the company's finance committee, Mr. Spurling said he believed the international business was under control in 1991.

He depended on the finance committee for advice that the pollution clauses in the company's polices would be effective protection from such claims.

Mr. Spurling continues giving testimony today.

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