AT WHAT COST CONVENIENCE?

LOOKING OUT FOR POLICYHOLDERS is a regulator's job, but Massachusetts Insurance Commissioner Linda Ruthardt is taking protection of one policyholder-General Electric Co.-to unreasonable extremes.

Commissioner Ruthardt has proposed a settlement under which she would become U.S. receiver for GE's hugely insolvent Electric Mutual Liability Insurance Co. In return, she will drop her investigation-and withdraw her support of other investigations-into charges that GE and EMLICO concealed the insurer's insolvency in a scheme to move it to Bermuda to take advantage of the island's favorable liquidation laws.

The deal is a bad one and should be rejected by a Massachusetts court.

GE and EMLICO representatives have repeatedly argued that this case is about greedy reinsurers launching fraud charges to avoid paying valid EMLICO claims. They are wrong. The case is about whether EMLICO lied to regulators to further GE's interests and, if so, whether they will be allowed to get away with it.

Documents filed in the case strongly suggest that EMLICO misled regulators and show a concerted effort by GE to stonewall subsequent inquiry.

This evidence includes a memo prepared for EMLICO by London law firm Clifford Chance & Co. six months before Commissioner Ruthardt approved EMLICO's redomestication, outlining advantages of a Bermuda runoff.

When the Insurance Division finally began to investigate, former EMLICO President David St. Laurent and another former EMLICO official refused to answer questions under oath, raising among other things the issue of their Fifth Amendment rights. This refusal alone is enough under Massachusetts law to place the insurer they now manage-former EMLICO subsidiary Electric Insurance Co.-into receivership.

Instead, Commissioner Ruthardt has agreed to a deal in which she will abandon her investigation; absolve GE, EMLICO, EIC and all of their employees and consultants of any liability connected to the redomestication; declare all documents obtained in the investigation confidential; turn over control of all EMLICO material to the insurer's Bermuda liquidators; and withdraw her support of efforts by the U.S. Attorney in Boston-who is still investigating-to obtain the Clifford Chance memorandum.

This goes beyond any reasonable settlement of disputed issues; Commissioner Ruthardt now appears willing to help GE and EMLICO bury potentially incriminating information.

And what does she get in return? An appointment as U.S. receiver that offers severely limited control at best and at worst is a sham. Under the deal, GE's huge environmental claims still will be settled in Bermuda and will only be reviewed in Massachusetts by a special master picked by GE, EMLICO's liquidators and Commissioner Ruthardt. The special master may not "substitute his or her judgment for that of the parties"-GE and EMLICO.

Commissioner Ruthardt says this settlement avoids the "uncertainty and expense" of trying to regain real control of EMLICO.

The cost of this approach, though, is the integrity of the Massachusetts Insurance Division. It isn't worth it.

Meanwhile, Bermuda's regulatory role in the EMLICO mess also is worth a note.

The Bermuda government has steadfastly maintained that this was Massachusetts' problem to solve. While Bermuda authorities could have undertaken their own investigation, they did nothing; they appear instead to agree with EMLICO that this is a mere business dispute and seem content to gain the jobs the EMLICO liquidation will generate.

Even if Bermuda regulators didn't believe they were deceived in the redomestication, though, they should not have remained inert when evidence suggested their U.S. counterparts were duped.

Bermuda's hands-off attitude in this case should be a concern to all companies-particularly reinsurers-that do business in the domicile.