Former director of Bermuda Fire William Cox admitted freely that he took a "gloomy'' view of his company's ill-fated books of international business.

However, Mr. Cox insisted to Cooper & Lines lawyer Ian Croxford QC that his clients had advised Bermuda Fire's directors there was "no threat'' from the spectre of mammoth pollutions claims emanating from the late-eighties United States.

"I had a simplistic view that an insurance policy is a contract that spells out very clearly what risks the insurers would be protected from,'' Mr. Cox said. "Whether or not pollution is covered -- either it's there, or it isn't; and if it isn't, the company is not at risk. We were told by our professional advisers that we had protection from our exclusion clauses.'' Mr. Cox acknowledged, however, that there were "danger signals'' from Bermuda Fire's international business.

The court heard that early in 1987 Bermuda Fire's directors received a report from Robert Bishop International examining market issues which Mr. Cox called "plagues in the industry'' -- namely, pollution claims, particularly asbestos, and expensive suits brought on insurance companies by the US Environmental Protection Agency.

"In general, by about these early times,'' Mr. Croxford asked, "you were aware that these plagues were abroad in the land?'' Mr. Cox said asbestos and the EPA became "more common currency'' after 1987.

"You knew the risk was out there,'' Mr. Croxford persisted.

"No,'' Mr. Cox replied. "I believed our advisers, who said that from the point of view of our company it was not a threat.'' However, when Mr. Croxford returned to the issue of environmental impairment, he pointed out: "Whatever your beliefs or expectations as to whether or not Bermuda Fire in fact had a liability, you knew by July of 1987 there were at least two parties testing that position ... by suggesting that Bermuda Fire did have an exposure.'' Mr. Cox agreed, whereupon Mr. Croxford said: "It follows that the question of whether or not pollution liability was within the contract was an issue likely to be settled by an American court.'' Mr. Cox agreed that this had rung "alarm bells'' for him.

The court also heard that in 1988, apparently at the suggestion of director Donald Lines, that Bermuda Fire was seeking an independent legal opinion on the matter.

The case continues today.