The parrying between the lawyer for Bermuda Fire & Marine Insurance Co. Ltd.'s liquidator and the former head of the company's international operations continued in Supreme Court yesterday, with both sides locking horns on whether there had been deliberate misrepresentation of the bad debt situation during the 1991 reorganisation.

Irmgard Viera, who is now head of BF&M Management Ltd., was being questioned on her management of Bermuda Fire's international business during 1990 and 1991 by Clare Montgomery, the lawyer for Bermuda Fire's liquidator Ernst & Young.

The two have been engaged in a battle of wills with Ms Viera holding up under the relentless questioning style of Ms Montgomery.

Ms Montgomery yesterday kept up that pressure, questioning Ms Viera about the reasons Bermuda Fire didn't reserve for future potential bad debt due from reinsurers who were in runoff, liquidation or were refusing to pay. Bermuda's Fire's international business was reinsured by up to 80 percent.

By 1990 and 1991 reinsurers were going into runoff or were being liquidated during what Ms Montgomery described as a "black'' time for the industry and Bermuda Fire was in a cash flow problem.

The liquidator claims reserves were deliberately underestimated so the company would appear solvent for the reorganisation. The liquidator claims the 1991 reorganisation was a fraudulent transaction in which profitable domestic assets were stripped from the company to form BF&M.

"Was there any pressure on you to keep down the bad debt reserve?'' Ms Montgomery asked.

"No,'' Ms Viera said.

Ms Montgomery continually referred to documents from 1990 and 1991 which she claims made it obvious to Ms Viera that Bermuda Fire's international runoff business was facing more losses than anticipated.

Ms Viera in turn continually held her ground that she was following procedures and thought the situation was under control. She testified that she also believed at the time reinsurers were paying but the money was being held by the brokers because of problems at H S Weavers. Bermuda Fire's international business was all underwritten though H S Weavers and related companies in the London market. But by 1991 H S Weavers and three principals were being accused of fraud in relation to illegally funnelling reinsurance commissions into secret banking accounts.

Ms Montgomery claimed Ms Viera's knowledge that a judge had ruled there was a case to be answered against the three should have sparked off a warning that reinsurers were going to attempt to use "moral hazard'' in arguing why they shouldn't pay what they owed.

Ms Viera said she trusted the reinsurers to pay what was owing but was aware there were some "wrigglers'' who might attempt to get out of paying.

"Your trust must have diminished because there was not a flicker of interest in paying,'' Ms Montgomery alleged.

Ms Viera stuck by her guns and said Ms Montgomery was more pessimistic about the business world then her.

"The majority did pay and are still paying up,'' she shot back.

Ms Montgomery asked why the company had asked actuarial firm Tillinghast to estimate reserves for potential future liabilities, known as incurred but not reported losses (IBNR), while excluding bad debt.

Ms Viera agreed that it would be misleading to think that Bermuda Fire would recover all the bad debt on IBNR.

Ms Montgomery asked whether therefore it was "unrealistic'' to require Tillinghast to exclude bad debt on IBNR.

"I'm not going to say it was unrealistic,'' Ms Viera said, adding that the company had set up a bad debt reserve for a portion of the reinsurance. She added that the company's didn't assume that it would be able to collect all reinsurance if potential claims were realised.

"What was the reason for you not doing so?'' Ms Montgomery asked.

"We didn't think we could quantify it,'' Ms Viera said.

Ms Montgomery then referred her to Tillinghast documents from which she had calculated the bad debt from one reinsurer which she said showed the bad debt on IBNR would be $100,000.

Lawyer and executive continue to lock horns "We were not as scientific as you are,'' Ms Viera said, adding that auditors Cooper & Lines had agreed with Bermuda Fire's methods and policy regarding bad debt.

"I didn't get into it in a scientific way as you did,'' Ms Viera said.

"You can't have thought it was not possible to calculate the bad debt on IBNR,'' Ms Montgomery alleged.

At which point BF&M Ltd. lawyer Elizabeth Gloster objected to the questioning.

After Ms Viera left the courtroom Ms Montgomery conceded she had made a mistake and that a certain document she was referring to was available only in December 1991 after the reorganisation.

She said she would be asking the same questions about documents which were produced before the reorganisation.

Puisne Judge Vincent Meerabux then questioned why Ms Montgomery was questioning Ms Viera about "tiny weeny figures''. Ms Montgomery said she was building up to questions about much larger sums on bad debt.

Robin Potts, lawyer for five former Bermuda Fire directors accused of fraud, also objected that Ms Montgomery was being repetitious and getting the same answers from Ms Viera.

"We have been through this twice and this is the third time,'' he said.

"...I don't think the colour of the horse is going to change the third time around.'' Ms Viera continues giving testimony today.

Irmgrad Viera BUSINESS BUC