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BOSTON-Reinsurers have no standing to challenge Electric Mutual Liability Insurance Co.'s controversial 1995 move to Ber-muda, a Massachusetts judge has ruled.
Suffolk County Superior Court Judge Patrick J. King last week dismissed lawsuits filed by several EMLICO reinsurers against the Massachusetts Insurance Division contesting the division's approval of the redomestication.
The lawsuits-originally filed in late 1995 by General Reinsurance Corp. units, Kemper Reinsurance Co. and Lloyd's of London underwriters-touched off an international legal battle that has raged for more than a year over the hugely insolvent EMLICO (BI, Dec. 11, 1995).
In a statement, EMLICO's Bermuda liquidators said the ruling clears a potential roadblock to approval of a settlement between the Massachusetts division, EMLICO and sole EMLICO policyholder General Electric Co. over the redomestication.
A lawyer for one of the reinsurers, meanwhile, said the case was "wrongly decided" and that reinsurers likely will appeal.
EMLICO, a longtime GE general liability insurer, moved to Bermuda in July 1995 after spinning off its non-GE liability business into a former subsidiary, Electric Insurance Co. Within months, it declared itself drastically underreserved for GE pollution and asbestos claims and insolvent by more than $500 million.
Reinsurers didn't find out about the move until after the liquidation filing. They quickly filed suit against the insurance division to reverse the redomestication, charging they had not received adequate notice of EMLICO's reorganization and that state law doesn't allow redomestication to a foreign country.
Reinsurers also charge that EMLICO misled regulators about its solvency as part of a plot with GE to take advantage of Bermuda liquidation laws that allow accelerated recoveries from reinsurers.
The Massachusetts division filed motions to dismiss the reinsurers' complaints, arguing among other things that reinsurers have no standing to question the decision.
In a ruling last week, Judge King agreed. The statute under which Insurance Commissioner Linda Ruth-ardt allowed EMLICO to redomesticate "mandates that the commissioner consider the best interests of policyholders," the judge wrote. The reinsurers "are not policyholders of EMLICO. Rather, they are merely potential creditors of EMLICO. Since (they) are not policyholders of EMLICO, they are not within that class of persons protected by the statute."
While state law also allows "any person aggrieved" by a decision to seek judicial review, the reinsurers failed to show they are aggrieved in a "legal sense" or that "substantial rights have been prejudiced," Judge King found.
Reinsurers' "allegations of possible harm and possible future consequences of the commissioner's decision fail to satisfy these prerequisites for standing," he ruled. The reinsurers "have no contractual or statutory right to condition EMLICO's reorganization" on obtaining their approval."
The judge also cited a Pennsylvania court's ruling that reinsurers could not challenge CIGNA Corp.'s reorganization because they were neither creditors nor policyholders (BI, March 10).
Judge King also turned aside reinsurers' arguments that he should expand the definition of "standing" because "the entire insurance regulatory scheme may be affected if the defendants are allowed to escape unscathed after their fraud upon the commissioner," Judge King wrote.
"It is not for this court to expand those definitions to fit the facts of this case," he concluded.
EMLICO liquidators hailed the ruling as clearing a "potential impediment" to their proposed settlement, which would make the Massachusetts division ancillary receiver of EMLICO. In a hearing last month, Supreme Judicial Court Justice John M. Greaney, who must approve the settlement, questioned what would happen if he OK'd it and Judge King later ruled the redomestication illegal.
A hearing on the settlement is scheduled May 6.
Meanwhile, another Massachusetts judge has ordered that EMLICO documents subpoenaed by the Insurance Division should not be altered, destroyed or shipped out of state until further notice. Lloyd's had sought the order after noting the settlement requires the division to turn over control of all EMLICO material to the Bermuda liquidators.
In addition, a Massachusetts state legislator has introduced a bill that would require the insurance commissioner to hold a public hearing in any case where there are grounds to believe a company has made "deliberate misrepresentations" to gain a regulatory approval. The Legislature's Joint Committee on Insurance may vote on the bill, triggered by the EMLICO case, during the week of April 14.