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BOSTON -- Massachusetts Insurance Commissioner Linda Ruthardt is trading more blows with state legislative investigators over her handling of Electric Mutual Liability Insurance Co.'s controversial 1995 move to Bermuda.
In an interim report released last week, the Massachusetts House Post Audit and Oversight Bureau attacked the Insurance Division's work on the case as "shoddy and unprofessional" and charged that it failed to deal with several complex issues, including EMLICO's solvency and whether regulators had the authority to allow EMLICO to move to a foreign country.
Ms. Ruthardt, for her part, criticized the report's "adversarial style" and said in a written response that "there was nothing imprudent or inappropriate about the division's review and approval" of the move.
The 71-page interim report expands on a preliminary draft that the oversight bureau released in June (BI, June 9).
House investigators won't issue a final report until more information and documents are analyzed, including a widely anticipated ruling by the state Supreme Judicial Court on a proposed settlement between the Insurance Division, the now-insolvent EMLICO and sole EMLICO policyholder General Electric Co., according to Thomas W. Hammond Jr., the oversight bureau's director.
The settlement -- opposed by EMLICO reinsurers, who charge the Bermuda move was part of a fraudulent conspiracy between EMLICO and GE -- would make the Massachusetts division ancillary receiver to EMLICO's Bermuda liquidators.
The court is expected to decide on the settlement by early next year.
Two documents attached to the oversight bureau report, meanwhile, are provoking more controversy. They are anonymous letters mailed to Ms. Ruthardt in January 1996 -- a few months after EMLICO's collapse -- urging her to investigate alleged wrongdoing by EMLICO and GE.
One of the letters, dated Jan. 18, 1996, charges that top EMLICO officials conspired to withhold information about the company during the redomestication process and later told others that "the decision and direction came from GE."
While regulators often get anonymous letters, not all of them credible, "it seemed very clear to me that somebody inside one of the companies had shipped those (letters) off based on inside information," Mr. Hammond said.
The Insurance Division should have followed up immediately, using subpoena power to compel testimony and production of documents, he said.
The division did issue subpoenas several months later to a number of companies and individuals, including former EMLICO officers, as part of an exam of Electric Insurance Co., a former EMLICO unit.
Former EMLICO President David F. St. Laurent and another EMLICO official refused to answer questions under oath, though, saying they were "possible subjects" of a federal grand jury investigation of EMLICO (BI, March 24).
GE representatives expressed surprise at the report's use of anonymous letters and dismissed the letters' charge of a conspiracy.
Mr. St. Laurent could not be reached.
EMLICO, a longtime GE general liability insurer, moved to Bermuda in mid-1995 and a few months later declared itself massively underreserved for GE pollution and asbestos claims and insolvent by more than $500 million. The collapse triggered massive litigation, including claims by EMLICO reinsurers that the insurer and GE planned the collapse to take advantage of favorable Bermuda liquidation laws.
Massachusetts House investigators reviewed the Insurance Division's handling of the redomestication and leveled several criticisms in last week's report, including that the division:
Relied on EMLICO's own lawyers for an opinion that state law allows redomestication to a foreign country, a conclusion reinsurers hotly dispute. The Supreme Judicial Court is considering the issue as part of its review of the proposed EMLICO settlement.
Obtained an agreement from GE waiving claims against state guaranty funds, but never told guaranty fund representatives. Fund managers, dissatisfied with the insurance division's agreement, negotiated their own waiver with GE after the collapse.
In her response, Ms. Ruthardt rejected the criticisms, noting among other things that the division's outside counsel reviewed the question of its authority to allow the EMLICO move.
She also argued that non-GE policyholders would have suffered without the redomestication, because EIC -- which has 80,000 personal lines policyholders and formerly was reinsured by its affiliate EMLICO -- would have collapsed itself if EM-LICO had remained in Massachusetts.